How will the dilution from the 1.75 M new shares (and potential 262.5 K over‑allotment) affect earnings per share and valuation multiples?

Dilution mechanics

The offering adds 1.75 million shares to the capital table and gives the underwriters a 45‑day option for another 262,500 shares (≈15 % of the base issue). Assuming Synergy’s current float is roughly 20 million shares (the most recent SEC filing), the post‑offering share count would rise to ≈21.75 million and to ≈22.01 million if the full over‑allotment is exercised – an increase of 8.8 % (or 10.0 % with the option). Earnings per share will be compressed by the same proportion, all else equal. For example, if FY‑2025 net income is projected at $6.0 million, EPS would fall from $0.30 to about $0.274 (without the option) and to $0.272 if the option is exercised.

Impact on valuation multiples

Because the market price is unlikely to stay exactly at the $2.50 offering price once the new shares settle, the net effect on the price‑to‑earnings (P/E) multiple is two‑fold: (1) a lower EPS lifts the headline P/E; (2) any price decline driven by the dilution‑induced supply shock pulls the denominator down. If the stock trades at $2.40 after the close, the pre‑offering P/E of ~8× ( $2.40 ÷ $0.30 ) would shift to roughly 9.2× ( $2.40 ÷ $0.274 ) or 9.3× with full over‑allotment – a modest but noticeable premium that signals a higher valuation risk. The same logic applies to EV/EBITDA and other multiples that are share‑based.

Trading implications

* Short‑term bias: Expect immediate selling pressure as the 1.75 M‑share supply hits the market. Look for the $2.45–$2.40 range as the likely support zone; a breach below $2.40 could trigger a 5‑10 % dip and open a short‑term entry for contrarians.

* Over‑allotment watch: Monitor the 45‑day option window. If the underwriters exercise the full 262.5 K shares, the dilution impact deepens and the stock may re‑test the $2.35 level. A partial exercise (or none) limits the downside and could set up a bounce toward the $2.55‑$2.60 resistance, especially if the $4.375 M proceeds are earmarked for a high‑impact acquisition or R&D spend that can lift future earnings.

* Fundamentals vs. price: Keep the EPS dilution in perspective—an ~9 % EPS reduction is modest relative to the company’s growth outlook. If earnings guidance remains upbeat and the capital is deployed efficiently, the longer‑term P/E could normalize below pre‑offering levels, making any post‑dilution pull‑back a potential buying opportunity for investors with a 6‑12‑month horizon.

Actionable tip: Enter a small‑size long position only after the stock stabilises above $2.45 and the over‑allotment decision is clear; otherwise, consider a short or hedged position targeting a 5‑7 % move down to $2.35‑$2.30, with a stop just above $2.50 to limit upside risk.