Why CPI Card Group stock tumbled 15% today

Actions of CPI card group (PMTS -15.56%)a small-cap company that is, curiously, one of the nation’s largest producers of credit cards that banks issue to their customers, was down 15% by 10:50 a.m. ET Tuesday morning. It’s not hard to see why: CPI’s largest shareholder is cashing in.

Insider sales

No receipts all in alltake care But as the company reported today, private equity firm Parallel49 Equity is offering between 1.2 million and 1.4 million shares for sale (depending on the exercise of over-allotment options). And he’s selling these shares for just $21 a piece.

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

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

Good or bad news for CPI stocks?

Also worth noting: This news may actually be better than it looks for shareholders. To date, Parallel49’s 6.2 million share stake in CPI has given it a 56%, controlling position in the company. In effect, CPI was a subsidiary of the private equity firm, and the votes of other shareholders on CPI’s future did not really matter.

However, the sale of 1.2 million (or 1.4 million) shares will reduce Parallel49’s stake to less than 5 million shares and a 45% stake. Likewise, CPI will no longer be controlled by Parallel49. Logically, this change will make the company more attractive to other investors, potentially increasing its long-term value.

For outside investors and for Parallel49 as well.