“Green wave” plays have become extremely hot recently and Plug Power (NASDAQ:PLUG) in particular has gone into hyperdrive. Trading for as low as $2.84 last spring, PLUG stock was hitting prices topping $75 by early 2020. But, as investors hit the brakes on “story stocks” starting in February, this hydrogen-fuel-cell play has seen its shares sell off in the weeks since.
Part of the reduced enthusiasm is due to quarterly results that fell short of expectations. But, there’s actually another development that should have investors concerned here.
I’m talking about the company restating its financial statements, going back to fiscal 2018. Bears have long pointed out the company’s fast-and-loose accounting methods as a questionable area. Admittedly, this alone doesn’t prove their case right. But it is something that should give Plug Power bulls pause.
Sure, even with the stock’s drop on Mar. 17, investors overall seem to be shrugging this off as no big deal. Yet, while perhaps not a crushing blow, it does raise red flags. So, considering other concerns like valuation, what’s your best move? Avoid.
What Financial Restatements Could Mean for PLUG Stock
After this major development hit the Street, Plug Power shares quickly dropped at the open on Mar. 17. But, as investors digested the news — and largely saw it more as small potatoes than a big bombshell — PLUG stock partially recovered. After briefly falling below $35 per share, this name is back to around $38 today.
Continued enthusiasm for this clean-energy play may be helping to soften the blow. However, the dust hasn’t settled just yet. PLUG stock could continue to drop as more information comes out regarding the financial restatements.
How so? Yes, as the company said itself, accounting revisions aren’t expected to affect its cash position. Nor are the revisions (related to non-cash items such as loss accruals and asset impairment) expected to affect business operations. The company also reiterated it’s going to hit previously stated growth targets.
But, as a Seeking Alpha contributor broke it down, this is far from being a ‘nothing burger.’ There could be litigation risk, primarily from those who participated in its recent equity raise at $65 per share. Also, if restated results show the company’s actual gross margins were less than first reported, investors could continue to reassess the long-term value of the company.
Put simply, there’s little reason to be confident in buying PLUG after this recent selloff. And, while its positives may continue to limit downside, other concerns could affect performance as well.
Can Green Policy Changes Save the Day?
The financial restatement news isn’t the only area of concern with PLUG, though. Another issue is the possibility of lower-than-expected results going forward.
Yes, the company’s results from the prior quarter were skewed by the vesting of warrants. As you may know, Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) both received a slug of PLUG stock warrants as an incentive to purchase the company’s technology for their warehouse forklifts.
Yet, as shares remain richly priced — with a forward price-to-sales ratio of 54.15 times — future results need to be flawless. The company may have slightly beat on revenue in the quarters preceding it’s most recent report. But any sort of hiccup, coupled with the added uncertainty from the upcoming prior-year revisions, could continue to weigh down on shares.
Then again, maybe not. True, bears on the stock have more to point to, validating their thesis. However, possible changes in America’s green-energy policies could save the day for the stock.
Sure, as seen from the stock’s epic moves after the U.S. Presidential election, investors have more than priced-in how much the “blue wave” will do for clean energy. But, that’s not to say investors won’t buy more on the news, especially after buying big on the rumor. As President Joe Biden and his administration make progress on a $2 trillion clean energy plan, bullishness may return to this stock.
Bottom Line: Avoid PLUG for Now
Investors may be viewing the restatement news as no big deal. However, while its more of a hiccup than a bombshell, this issue has yet to fully play out. If further bad news (like litigation) comes out of this, we could see more downward pressure ahead.
Of course, “green wave” developments from the U.S. government may save the day. But valuation remains frothy, predicated on the company living up to sky-high expectations. In short, it won’t take much to cause PLUG stock to sink rather than surge.
So, what’s the best move? Stay away for now.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
