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Plug Power develops hydrogen fuel cell systems.
Toru Hanai / Bloomberg
Hydrogen fuel cell company
Plug it into the socket
Reforms financial statements for years past due to widespread accounting errors, triggering a major sell-off on Wednesday.
Plug (ticker: PLUG) share is down about 11% in early trading to about $ 38 a share. The S&P 500 is down about 0.5%. The Dow Jones Industrial Average has risen slightly.
In a statement, the company said the errors were related to complex financial accounting with customers, loss estimates for service contracts, and cost classification in the income statement.
Plug was not readily available to quantify or clarify the reformulations.
Investors hate accounting reformulations. It can undermine confidence in any business. Essentially, all investors must value and evaluate companies, in reported numbers.
Cowen analyst Jeffery Osborne doesn’t seem to be concerned about the mistakes. He reiterated his Buy rating on Plug shares Monday. “We see the weakness as a unique buying opportunity,” Osborne wrote. “While the restatement of results is never positive, the root cause of the restatement has nothing to do with future growth markets, and we note that there was no cash impact.”
Osborne focuses on the accounting of customer contracts. Some customers namely
Walmart
(WMT) and
Amazon.com
(AMZN), have warrants to buy Plug shares, an arrangement that led to negative sales in the fourth quarter. In essence, the warrants became so valuable that customers received equipment for less than nothing. Plug inventory rose nearly 1,000% in 2020, which is why the warrants were so valuable.
However, Truist analyst Tristan Richardson lowered the value of Plug’s stock from Buy to Hold on Wednesday and lowered its stock price target from $ 65 to $ 42. benefit to the solution, “the analyst wrote in a report Wednesday.
However, the issuance of income / warrants may not be the main reason the stock has declined. Plug is also shifting research and development costs to the cost of goods sold. The overall impact on profit margins is nothing, but the change lowers gross profit margins, which is important to investors as the gross profit margins are used to get a sense of how profitable a business can be. The company is not yet making an annual profit.
“It is usually not that difficult to determine whether the costs are above or below [gross margin] line so a reformulation in such a case is always a bit disturbing, ”says accounting expert Robert Willens Barron’s
Willens has not looked at Plug’s adaptation, but has looked at many difficult accounting situations. ‘Since loss [estimates] are unique within the province of management, which has the expertise required to evaluate the value of service contracts, the fact that KPMG had to intervene and question the extent of the company’s losses incurred is also a bad sign. ”
For now, investors agree with that sentiment.
Write to Al Root at [email protected]