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Why Camping World stock has plummeted nearly 12% today.

Why Camping World stock has plummeted nearly 12% today.

Almost 15 million new shares of the company will soon enter the market.

Days after delivering a market-pleasing quarterly earnings report, Camping World Holdings (CWH -11.75%) published news that wiped the smile off the faces of many investors. The company is launching a somewhat complicated new issue of shares at a fairly modest price, and this sent the share price down almost 12% on Thursday. That was a much steeper drop than the 1.9% drop. S&P 500 index.

Almost 15 million new shares for sale

After the market closed on Wednesday, Camping World announced a secondary share issue and set a price for the offering. The outdoor goods retailer is offering just over 14.6 million shares of its Class A shares ordinary shares to the general public at $20.50 each. That’s more than $3 a share lower than the stock’s price on Wednesday, the day after those quarterly earnings numbers were released.

As usual with such financing steps, Camping World has granted the underwriters of the issue a 30-day option to purchase additional shares. That syndicate headed by Goldman Sachs and JPMorgan Chasewill be able to purchase up to almost 2.2 million shares together.

Camping World said it will use the proceeds to buy more than 14.6 million common units from its subsidiary CWGS Enterprises. In return, CWGS will use its proceeds for general corporate purposes, helping Camping World. These include working capital and debt repayment.

The company expects the issue to be closed on Friday, November 1st.

Beware the market

Typically, a company raising fresh capital will do so directly; in this case, Camping World does it with a little financial engineering that involves a subsidiary. This clearly and understandably makes investors wary, and the relatively low price only adds to that feeling.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends positions in Goldman Sachs Group and JPMorgan Chase. The Motley Fool recommends Camping World. A motley fool has a disclosure policy.