Here's Why PagSeguro Digital Stock Is Plunging Today

What happened

Brazilian online-payment company PagSeguro Digital (NYSE:PAGS) announced on Monday that it would issue 11.55 million new shares, an increase of nearly 4% in the company's outstanding share count.

What's more, controlling shareholder Universo Online said that it is proposing to sell 21.45 million shares of PagSeguro. So that's a total of exactly 33 million shares of the company that will be sold.

Thanks to these announcements, the stock is down by about 15% as of 11 a.m. EDT on Tuesday.

Image source: Getty Images.

So what

The sale by Universo Online seems to be the most negative part of this news, as it appears that PagSeguro's controlling shareholder is in a hurry to get rid of some of its stock.

Furthermore, it's important to note that PagSeguro just went public in January. The original lock-up period (which prevents pre-existing shareholders from selling shares shortly after an IPO) hasn't even expired, but this lock-up can be released by underwriters.

As for the company's newly issued shares, it appears troubling that it needs to do a follow-on offering so soon after its IPO.

As a result of these developments, Credit Suisse downgraded the stock from neutral to underperform, and if notes from other analysts are any indication, there may be other downgrades to come in the days ahead.

Now what

To be clear, companies issue follow-on offerings for good reasons all the time, and controlling companies can certainly unload shares for reasons having nothing to do with perceived growth potential. And it's also worth noting that the stock is still up by more than 25% from its IPO price. However, the bottom line is that these two moves certainly appear negative so soon after PagSeguro's IPO.