Plug Power – cash infusion drives up price

Production facilities of HYVIA, © Renault
Production facilities of HYVIA, © Renault

A few months ago, Plug Power [Nasdaq: PLUG] was forced to revise several of its previously published financial statements. While the accounting errors were not severe enough to have a material impact on the statements, they resulted in a USD 62.9 million decrease in R&D costs in the years 2018 to 2020 and a corresponding rise in cost revenue. Furthermore, non-cash charges, including charges associated with warrants Plug granted to Amazon and Walmart, exceeded USD 400 million. That’s pretty notable. Do these charges have anything to do with Plug’s relatively high amount of short interest, which comes to over 50 million shares? Could Amazon and Walmart have exercised warrants? Or have they now shorted stock to shore up their unrealized gains running into the billions of dollars?

Plug has done a very good job of maintaining investor relations and becoming a focal point of discussion on Reddit and WallStreetBets. In other words, Plug’s stock will likely continue to rise. Still, questions have been raised about a few of the company’s first-quarter acquisitions. Plug reportedly issued around 55 million shares worth USD 1.6 billion to acquire multiple companies previously owned by SK Holding: Grove Energy Capital, Plutus Capital NY and SK E & S Americas. At around the same time, SK Group South Korea purchased a 9.9-percent ownership stake in Plug. So, were Plug’s acquisitions part of an asset exchange? Will they affect the USD 5 billion Plug has in cash? I’m only speculating here as to the company’s motives. Though I have yet to find answers to both questions.

HyVolution

Plug’s actual goal was to become less dependent on two big customers, Amazon and Walmart. It seems there’s no money to be made from either. But there’s good news as well, as Plug is forging multiple new alliances. Partners include Baker Hughes (see Bloom), which is in talks with Plug about setting up a hydrogen fund, metal trader Johnson Matthey and Chart Industries (see Ballard). You could rightly say Plug is all over the map these days; see also its collaboration with automaker Renault (see fig. 3 and p. 7). Now, the fuel cell business needs to demonstrate that it can produce hydrogen at reasonable costs and turn a profit selling the gas as fuel for forklift trucks. Analysts have set new price targets in the range of USD 40. I believe Plug should take a closer look at what Nikola Motors is doing. I can think of several reasons why Plug should be setting up a new joint venture or make another acquisition. As for the stock itself, I prefer Bloom’s or Ballard’s.

Risk warning

Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

HOC

Author: Sven Jösting, written June 1st, 2021

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