What potential impact could the warrant over‑hang have on the stock price if the warrants are exercised in the near term?

Warrant over‑hang and near‑term price pressure

The offering includes “pre‑funded” warrants that can be converted into up to 6.71 million additional shares at an exercise price of $2.9999 – essentially the same price as the common‑stock sale ($3.00). Even though the exercise price is only a few‑tenths of a cent below the offering price, the fact that a sizable block of shares can be added to the float creates a classic over‑hang scenario. If investors or the underwriters decide to exercise the warrants soon after the closing (e.g., within weeks), the market will be faced with a sudden increase in supply of roughly 6.7 M shares, representing about 20 % of the 33.3 M shares sold in the offering and a non‑trivial fraction of Compass’s total outstanding shares.

From a fundamental standpoint, the dilution will lower the fully‑diluted EPS and net‑share‑holder ownership, which tends to depress the valuation multiples that the market applies to a clinical‑stage biotech. The near‑term cash‑in of the warrants will not materially change the balance sheet (the proceeds are already reflected in the $120 M raise), but the dilution impact will be reflected in the price‑to‑earnings and price‑to‑sales ratios that analysts use to price the stock.

From a technical perspective, the added supply creates a short‑term ceiling around the $3.00 level. Historical patterns for similar biotech offerings show that the stock often stalls or slides 3‑5 % below the offering price once the warrant pool is exercised, as the market digests the extra float and the accompanying dilution. Expect a rise in trading volume and a possible breach of the $3.00 resistance, followed by a quick test of the $2.85–$2.90 support zone as the market re‑prices the diluted equity.

Actionable take‑away

• Short‑term bias: Anticipate modest downward pressure (≈3‑4 %) if the warrants are exercised within the next 2–4 weeks.
  
• Watch the volume bar: A spike in sell‑side volume at $3.00–$2.95 will be a red flag for the dilution impact.
  
• Positioning: Consider a modest short position or a protective put at $2.90–$2.95, especially if the stock fails to hold above $3.00 on higher‑than‑average volume.
  

Overall, the warrant over‑hang adds a near‑term dilution risk that can cap upside and generate a short‑term price correction, even though the exercise price is essentially in‑line with the offering price. Traders should monitor the warrant‑exercise timeline and be ready to act on the expected supply‑driven price move.