Plug Power (NASDAQ:PLUG), a maker of hydrogen fuel cells, recently announced that it was set to restate its financials for the last few years. That's never an encouraging sign, and while the company itself noted that the impact would likely be limited, it was enough to send the company on a downward spiral that started in premarket trading and continued well into the day's trading.
Restating A Whole Lot of Results
Plug Power turned in a filing with the Securities and Exchange Commission on Tuesday night, noting that it would restate its filings for fiscal year 2018, fiscal year 2019, and several quarterly filings from both 2019 and 2020. As for the reason for all the restating, the company noted that it had found “accounting errors” that were connected to “long-lived assets.” This generally encompasses issues like service contracts.
Plug Power representatives noted that the restatements would likely have little impact on the company as a whole, delivering no adjustments to the company's cash position, current operations, or the “economics of commercial arrangements.”
Plug Power representatives further noted that the review that prompted the restating of results didn't reveal any financial misconduct and that the issues discovered didn't have much impact on the recently-announced fourth quarter and full-year results. The market did not take the news well, as the company is down about 15% from its close yesterday so far today.
An Improving Consensus
While the announcement of restating financials may prove disconcerting to the average investor, our latest research finds that the analyst community isn't nearly so concerned. Not only is Plug Power currently carrying a consensus “buy” rating, it's actually held that “buy” rating for better than the last two years.
Currently, Plug Power has one “sell” rating, three “hold” and 11 “buy” ratings to its credit. A year ago, it had six “buy” ratings, and six months ago, it stood at eight “buy” and one “sell”.
The price target, however, is a different matter. The average price target right now for Plug Power is $52.69 a share, which includes a high of $83 and a low of $23, suggesting that there's a lot of room in between the extremes for this stock to go. Given that Plug Power currently trades at $36.81 as of this writing, there's at least some uncertainty about Plug Power's ultimate direction. The recent movement seen in the analyst sector doesn't help matters here either; earlier today, Craig Hallum and Truist Securities both lowered their price targets, with Hallum going from $88 to $49 and Truist dropping from $65 to $42.
A Troubling Proposition and an Opportunity in the Making
It's important to bear in mind that the Plug Power results may not have any actual impact outside of a few lines on a balance sheet. Still, it's never the sort of thing investors want to hear, and it only gets worse when it goes back as far as Plug Power went with its results. Errors happen; at the end of the day, we're all only human, so hearing about a company restating earnings for a quarter is less a problem. Let he who has never transposed the numbers on a ledger or even on a check cast the first stone.
Hearing about restatements going back years, however, is a much tougher prospect to swallow. While certainly, Plug Power is taking great pains to inform both current and potential investors about the problem, the end result is still a lot of error that is ongoing. And though, certainly, the company didn't find any actual malfeasance, it's almost certainly making a certain portion of investors question that notion to the point where they're dumping stock before what they think may be the worst of things emerges.
However, given that Plug Power already has several major names as customers—including both Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT)—some minor errors in the financials might be overlooked. The company is making sales, and making money; if it's misstated some results in long-term efforts like service contracts, that may not be the concern some might think it is.
A prudent response to such an issue, therefore, might be to hold out and see how things shake out. Certainly some are running for the door already, but this may prove to be the makings of a good access point in the future. If the company loses ground for a couple of days then starts to recover, it might be a good time to get back in. Hydrogen fuel cells, after all, are likely to be a big part of future energy use, and Plug Power is one of the biggest names therein right now.
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