That was fast. First, Plug Power [Nasdaq: PLUG] raises around USD 840 million issuing new shares at USD 22.25 apiece. A felt five minutes later, the company is offered a USD 1 billion bought deal, perfectly exploiting the stock surge to collect massive capital. Plug must now have over USD 1.7 billion in the bank, thanks to the company’s growth prospects targeting hydrogen.
Third-quarter results showed a non-GAAP loss of USD 0.04 a share, a nice surprise since a loss of USD 0.07 was expected. But GAAP showed a per-share loss of USD 0.11, whereas analysts expected minus USD 0.07 on average. The market founded the distinctly higher stock price on non-GAAP earnings, less indicative in my opinion.
Throughout the year, insiders sold USD 100 million worth of Plug stock. On Nov. 12, 2020, Plug’s chief financial officer Keith Schmid reportedly divested USD 1.9 million worth of stock at USD 22.84 per share, just a few days before the above-mentioned capital raise. In my eyes, a first warning shot.
The warrants granted to Amazon and Walmart are interesting. Each corporation guarantees Plug USD 600 million to convert forklifts. These warrants are issued in exchange for USD 50 million in purchases. Amazon can exercise two tranches of warrants at USD 1.19 a pop, while the price for additional warrants is USD 2.55 apiece. At the end of 2020, Amazon had around 35 million warrants, with another 20 million to arrive in the coming years. Already unrealized gains over USD 700 million, according to a Seeking Alpha article.
The same goes for Walmart’s 13 million warrants at a price of USD 2.12 per share, potentially. Another 42 million warrants will follow as long as purchases hit USD 50 million. My conclusion: Plug is drawing computably large orders. How high-margined they are is beyond my judgement. But should the warrants become shares, it’s a decided stock dilution for existing shareholders.
So, what are the two corporations going to do? Will they secure profits through warrants, shorting stock? Amazon and Walmart orders reportedly make up 50 to 70 percent of Plug’s total revenue.
We can call Plug’s business model sustainable when it produces hydrogen via electrolysis, which is the company’s clear intention. I believe once industrial-scale water-splitting is underway, hydrogen will be a lovely, consistent profit-maker. Still, I am leery of a USD 12 billion market cap. And it raises the question what Plug intends to do with its enormous cash cushion. Acquisitions? Let’s cross that bridge when we come to it.
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.
Author: Sven Jösting, written December 18th, 2020