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Plug Power is developing hydrogen fuel cell systems.
Toru Hanai / Bloomberg
Company with hydrogen battery
Connect the power supply
restates the financial statements of recent years due to widespread accounting errors, triggering a large sale on Wednesday.
Plug shares (ticker: PLUG) fell about 11% in early trading to about $ 38 per share. The S&P 500 fell about 0.5%. The Dow Jones industrial average has risen slightly.
In a statement, the company said the mistakes were related to complex customer finance accounting, loss estimates for service contracts and classification of expenses in the income statement.
The plug was not immediately available to quantify or clarify retreats.
Investors hate accounting restatements. It can undermine trust in any company. All investors need, in essence, to appreciate and evaluate companies.
Cowen analyst Jeffery Osborne doesn’t seem worried about mistakes. He reiterated his buy rating on the Plug stock on Monday. “We see weakness as a unique opportunity to buy,” Osborne wrote. “Although 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 has been no impact on cash.”
Osborne focuses on contract accounting with clients. Some customers, namely
Walmart
(WMT) and
Amazon.com
(AMZN) have mandates to buy Plug shares, a deal that led to negative sales in the fourth quarter. In essence, the mandates have become so valuable that customers have received equipment for less than nothing. The stock of plows has increased by almost 1,000% in 2020, which is why the mandates were so valuable.
Truist analyst Tristan Richardson downgraded Plug shares on Wednesday to buy from Buy and lowered his share price target to $ 42 from $ 65. “While the company has reiterated long-term goals and accounting problems appear transient, we see limited growth until settlement,” the analyst wrote in a report on Wednesday.
However, the issue of revenue / money orders may not be the main reason why stocks are down. Plow also moves research and development costs to the cost of goods sold. The total impact on profit margins is nothing, but the change reduces gross profit margins, which matters to investors, because gross profit margins are used to get an idea of how profitable a business can be. The company is not yet making year-round profits.
“It is usually not so difficult to determine whether the costs are above or below [gross margin] so a reformulation in such a case is always a little disturbing “, says the accounting expert Robert Willens Barron’s.
Willens did not look at the reformulation of Plug, but he analyzed many difficult accounting situations. “It simply came to our notice then [estimates] are uniquely in the province of management, which has the necessary expertise to assess the value of service contracts, the fact that KPMG had to intervene and question the extent of the company’s accumulated losses is also a bad sign. ”
For now, the investor agrees with this sentiment.
Write to Al Root at [email protected]