Why CPI Card Group Stock Crashed 15% Today

Shares of CPI Card Group (NASDAQ: PMTS), a small-cap company that's curiously also one of the nation's biggest manufacturers of the credit cards that banks issue their customers, plunged 15% through 10:50 a.m. ET Tuesday morning. It's not hard to figure out why: CPI's biggest shareholder is cashing out.

Insider selling

Not cashing out entirely, mind you. But as the company advised today, private equity firm Parallel49 Equity is offering anywhere from 1.2 million to 1.4 million shares for sale (depending on whether overallotment options are exercised). And it's selling these shares for just $21 apiece.

CPI stock closed near $28 last night. So you can understand why investors were a bit surprised by this news, and this price. It must feel a bit like someone on the inside knows something we don't and is dumping their shares at a loss. But here's the thing:

According to data from S&P Global Market Intelligence, Parallel49 first invested in CPI Card Group back in June of 2007. That's long enough ago that even S&P doesn't have good data on how much the company was worth. But presumably, Parallel49 paid a whole lot less than the stock is worth today -- and after so long a wait, it's understandable that the company might want to take a bit of profit.

Good or bad news for CPI stock?

Also worth noting: This news may actually be better than it looks for shareholders. Up until today, Parallel49's 6.2 million-share stake in CPI gave it 56%, a controlling position in the company. Effectively, CPI was a subsidiary of the private equity company, and other shareholders' votes on CPI's future didn't really matter.

Selling 1.2 million (or 1.4 million) shares, though, will reduce Parallel49's stake to fewer than 5 million shares, and a 45% stake. Just like that, CPI will no longer be controlled by Parallel49. Logically, this shift will make the company more attractive to other investors, potentially boosting its value in the long run.

For outside investors, and for Parallel49, too.

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Rich Smith has positions in Cpi Card Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.