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Why Plug Power Stock Plunged 10% This Morning

By Rich Smith – Aug 12, 2020 at 10:38AM

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Plug sells shares to raise cash.

What happened

Shares of hydrogen fuel cell stock Plug Power (PLUG 0.38%) tumbled more than 10% this morning, and remain down 8.3% as of 9:50 a.m. EDT, after the company announced last night that it will sell as many as 35.3 million new shares of stock to raise cash.  

So what

On the one hand, at a price of $10.25 per share, the offering holds the potential to raise more than $360 million in cash (before fees are subtracted from the proceeds). That's good news because, when the offering was initially announced just a few hours before it was priced, Plug was thinking that it might raise only $345 million.  

It's bad news for existing shareholders, however, because the addition of 35.3 million new shares to Plug's already 363.6 million shares outstanding (per data from S&P Global Market Intelligence) will dilute Plug's current owners out of about 8.8% of their ownership stake -- a number not coincidentally close to Plug's percentage decline today.

Cartoon of a hand and knife cutting into a cake with a dollar sign

Image source: Getty Images.

Now what

But, really, what choice did the company have? In its entire 23-year history, Plug Power stock has never earned a full-year profit. It's never generated a penny of free cash flow, either -- and when a company can't generate cash from selling products, but can raise cash from selling stock, well, that may seem like a reasonable solution to its cash flow problems.

Just don't expect shareholders to be happy when it happens.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Plug Power Stock Quote
Plug Power
$15.81 (0.38%) $0.06

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