Please ensure Javascript is enabled for purposes of website accessibility

Why Plug Power Inc's Shares Plunged 13% Today

By Travis Hoium - Updated Apr 12, 2017 at 12:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Another dilutive announcement sent Plug Power's shares lower on Wednesday.

What happened 

Shares of hydrogen company Plug Power Inc (PLUG 3.68%) fell as much as 12.9% today after warrants to buy the company's shares were exercised. Shares recovered slightly by mid-day and were down 7.7% at 11:05 a.m. EDT. 

So what

Plug Power has entered an agreement with Tech Opportunities, who will exercise 10.5 million shares in the company for $1.50 per share, and in exchange will get another 5.3 million warrants to buy shares for $2.69 per share. The move will bring $15.8 million into the company, which will likely be used to fund growth from the supply deal with Amazon announced a week ago. 

Leaf outline of a car with the caption CO2 free.

Image source: Getty Images.

The cash may be needed to meet supply agreements, but if those agreements don't eventually become profitable for Plug Power, the company will keep going to shareholders with pockets turned out, looking for cash. 

Now what

The chart below shows why dilution from warrant sales like this are such a problem. Over the last decade, shares outstanding have grown 20 times, and they'll likely grow more in the future. Tech Opportunities and Amazon alone have 5.3 million and 55.3 million warrants, so there will be more dilution in the future. 

PLUG Average Diluted Shares Outstanding (Quarterly) Chart

PLUG Average Diluted Shares Outstanding (Quarterly) data by YCharts.

Plug Power has a lot of growth opportunities ahead, particularly after the Amazon deal, but funding growth could be costly. And there's no evidence in the company's history that big supply deals will be profitable, either. Worse yet, the upside in the stock goes to companies who own warrants and will dilute current shareholders. As we saw after the Walmart deal in 2014, big supply deals don't necessarily end well for shareholders in the long term. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Plug Power Inc. Stock Quote
Plug Power Inc.
PLUG
$17.18 (3.68%) $0.61
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$109.56 (3.15%) $3.35
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$122.63 (0.86%) $1.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.