Plug Power (NASDAQ:PLUG), which is a leading hydrogen-fuel cell operator, seemed to be a sure bet for investors. During the past year, PLUG stock soared from $2.80 to a high of $73.
But lately, things have not gone too well. First of all, there was the sell-off of high-growth stocks. The sell-off has been widespread and it is far from clear when this will end. For the most part, it looks like there is a major rotation in the markets.
Next, for PLUG stock, the company announced shocking news this week: a restatement of the financial statements. Because of this, PLUG stock is now trading at $36, with the market capitalization of $21 billion.
OK, so what now? Could this actually be a buying opportunity? Or is it just best to avoid PLUG stock for now?
Let’s take a look.
The Restatement
It does not look like the restatement was due to manipulation or fraud – which is certainly encouraging. Rather, it does look more to be a matter of the complexities of the businesses. After all, PLUG relies on sophisticated multi-year lease arrangements.
But regardless of the reason, the restatement is definitely a major red flag. If anything, it is an indication of problems with the systems. This may mean that there are other problems lurking in the business.
And this should not really be a surprise either. The company has been growing at a rapid pace and the CEO has set lofty goals to hit. As a result, it can mean that certain discipline may be lacking so as to keep up the growth ramp.
Now in terms of the restatement for PLUG, it involves primarily non-cash items like the book value of the right to use assets and related finance obligations, loss accruals for service contracts and the impairment of long-term assets. The fiscal years affected are 2018 and 2019.
Yet there is a silver lining. The restatement will not materially impact the company’s cash flows. PLUG believes that gross billings are still on target for $475 million to 2021, $750 million for 2022 and $1.7 billion for 2024.
Bottom Line on PLUG Stock
The fundamentals for the hydrogen-fuel cell are certainly quite positive. With the election of President Joe Biden, there will likely be more focus on alternative fuels. In the meantime, many companies are also looking at ways to be more green.
As for PLUG, the company has been able carve out a lucrative niche in the forklift category. Just some of the marquee customers include Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), Carrefour and Kroger (NYSE:KR).
PLUG has also been aggressive in forging partnerships. Recent deals include a 50-50 joint venture with Groupe Renault for the development of cell light commercial vehicles, taxis, and commercial people transportation systems in France. Then there was an arrangement with SK Group, which has involved a $1.5 billion investment.
But the restatement should not be dismissed as negligible. Here’s what Truist analyst Tristan Richardson had to say about it: “While the company reiterated long-term targets and the accounting issues appear transitory in nature, we see limited upside until resolution.” He dropped his price target on PLUG stock from $65 to $42.
Again, whenever there is a restatement, this may be a symptom of other problems with the organization. Besides, the process of remediating the problems will probably be a major distraction for Plug Power and it could take a while to get the real financial numbers.
In fact, the restatement may even be a sign that its deals are not as profitable as believed. In other words, there could be some overhang on PLUG stock, at least for the near term. So it may be best to hold off on a purchase for now.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
