Pacific Ethanol can't catch a break

Pacific Ethanol Inc. (NASDAQ:PEIX) made a huge comeback last Monday leaping from $3.20 to $5.65, just one week later is back down to $3.79 a share.  Hard to believe this stock was $44.50 in 2006 and this week's fall is due to the dillution of PEIX shares by adding millions more to be shorted on the open market. Kudos Management.

Here's the story from Sacbee.com:
Pacific Ethanol Inc., seeking to bulk up at a time of slim profit margins, said Friday it has raised $34.25 million through a series of private stock sales.

About $5.75 million in preferred stock and warrants were purchased by a group of company executives, including Chairman Bill Jones; Neil Koehler, the president and chief executive; and Koehler's brothers Tom and Paul.

The rest of the capital, about $28.5 million, was raised in a sale of common stock and warrants to a group of institutional investors. The deal is scheduled to close by Thursday.

Warrants are a type of option that can be converted to common shares.  Great timing, the stock is now beat-up worse the Michael Jackson's career:

Although existing shareholders didn't like the news, Koehler said the announcement will make the company stronger.

"Working capital was a constraint, liquidity was a constraint," he said in an interview. "We have very squarely addressed that."

Koehler said the announcement made for "a very good day for the company and its shareholders."

The company's stock price, however, dropped $1 a share, to $4.18, on the Nasdaq market.

Investors were likely responding to the dilution effect; the twin deals will have the effect of putting millions of new shares of common stock on the market.

The move marked the second time in two months the Sacramento-based company made a big stock sale. In late March, facing a liquidity squeeze, Pacific Ethanol sold $40 million worth of stock to its construction contractor.

Pacific Ethanol has been struggling with falling sales prices, rising costs for corn and internal problems, including construction cost overruns.

But it also has succeeded at establishing its marketing footprint across the West. In the first quarter, margins fell by one-third but profits from continuing operations increased because of a 63 percent increase in revenue.

Still, Masters, keep an eye on PIEX shares, with all the ethanol/$4 Gas hype investors could see a bounce.