Blink Charging (NASDAQ:BLNK) states that it is a leading player in the EV revolution. In particular it says that Blink is “[The] leading owner, operator and provider of EV charging stations and services in the United States.” For investors in BLNK stock, this hasn’t been such a good business proposition, however.

Despite being a leader in this space, Blink generated only $2.5 million in revenues for 2017. That was actually a slowdown from $3.3 million in 2016, even as EV adoption has continued to rise. Not surprisingly, BLNK stock has gone down and down over the years.

Earlier this week, however, BLNK stock rallied. This came on rumors that Tesla Inc (NASDAQ:TSLA) was thinking about buying Blink Charging. According to the rumors, this would allow Tesla to expand its service network. However, the rumors appear to be little more than social media gossip; there’s scant hard evidence that Tesla wants to buy Blink. And if it doesn’t, expect Blink’s stock to drain down further.

Prepare for Dilution

On Aug. 29, 2017, Blink Charging executed a 1:50 reverse stock split. A 2008 study found that stocks which engage in reverse splits go on to underperform the stock market by 50% on a risk-adjusted basis. It’d be nice if a newer study updated these findings. But it seems the general trend hasn’t changed. Notable reverse splits, such as those at Dryships (NASDAQ:DRYS) and Helios & Matheson (NASDAQ:HMNY) have led to near total shareholder wipeouts.

A reverse stock split does nothing to make a company more valuable. It simply divides up the company’s equity into fewer pieces, which has no inherent impact on valuation. It does, however, tend to lead to a declining stock price.

A reverse split has two significant impacts. For one, speculators that see a penny stock and think it is “cheap” because it only costs a buck per share or whatnot will be scared off by the higher price. Many of the largest short squeezes occur in stocks trading under $5 for this reason. On top of that, brokerages make it more difficult or sometimes even impossible to short penny stocks due to the squeeze risk. A reverse split, which puts the stock back into a higher-priced range, makes it easier for short sellers to rebuild their positions in the stock.

BLNK stock is already tainted by one rather sizable reverse split last year. And with the stock slumping again, it isn’t inconceivable that another will be coming in future quarters. As the company says in its annual filing: “[We] expect to retain our leadership position with new capital.” For a company with minimal revenues, new capital usually comes in the form of more equity offerings.

Delinquent Taxes

Most traders don’t read a company’s financial filings before buying or selling stock. This is often a mistake. You can find clues that help determine whether a company is a prudent speculation or a longshot gamble. Sometimes, you find more than just a clue.

In the case of Blink, we find a rather jarring disclosure headline in its risk factors: “We Have Failed to Pay Certain State and Federal Taxes and May be Subject to Penalties as a Result.” There are many places to scrounge for money as a fledgling public company, but not paying taxes is a risky option to say the least.

Blink goes on to note that it failed to remit sales tax collected on revenues to state authorities. Additionally, Blink withheld taxes out of employees’ salaries but didn’t in turn deliver these withholdings to the IRS. The company states that it is in the process of making good on these past due taxes now that it has raised additional capital. Regardless, this is not the sort of thing you want to see from a company, as it speaks to a high level of cash flow strain.

Can Blink Obtain EV Charging Leadership?

As is often the case with these start-up tech companies, it is worth asking if its business model seems plausible. In many cases, a company has a grand vision, but simply lacks the resources to pull it off. I fear that Blink Charging may be one such case.

The company states in its annual filing that it believes itself to be a leader in EV charging. However, judging by its skimpy $2.5 million in revenues over the past year, it is hard to back up this claim based on existing results. Thus, I ask: Will Blink dominate in the future?

Unfortunately, we see that the company only has four patents to defend its technology. Worryingly, they disclose this: “We intend to continue to regularly assess opportunities for seeking patent protection for those aspects of our technology, designs and methodologies that we believe provide a meaningful competitive advantage. However, our ability to do so may be limited until such time as we are able to generate cash flow from operations or otherwise raise sufficient capital to continue to invest in our intellectual property.”

This raises the potential for Blink, even if it manages to build a profitable business, of still not delivering shareholder returns. History is littered with examples of inventors who created a great product, but were outmaneuvered by businesses with more access to capital.

Additionally, one has to ask if Blink has enough human capital to lead such an innovative industry. As of April, the company had just 23 full-time employees and 8 part-time workers. In particular, it had just one employee in the Silicon Valley region. In general, it will be more difficult for companies that aren’t located in tech hotbeds to be able to disrupt their industries.

BLNK Stock: Low Voltage Ahead

It’s not surprising that BLNK stock managed to rally sharply. The stock had dropped from as high as $8 in May to just $3 recently. Speculators will often get excited about stocks once they get oversold like that. And there were some short sellers in the stock to squeeze.

But the Tesla rumors are just that. There’s no clear indication of any tangible deal. And looking further into Blink’s filings, it’s uncertain what Tesla would be acquiring that it can’t build on its own.

Blink’s corporate president resigned earlier this year. It has a rather tiny workforce and a rather modest patent inventory. The company has failed to pay past taxes on time and its auditor highlighted deficiencies in the company’s financial controls. It will likely need to raise a great deal more cash to simply stay in business. For stockholders buying today, it’s hard to see BLNK stock playing out well.

At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities.