Editor's note: After publication of this article, a spokesperson for PureCycle reached out to provide this statement: "We remain confident in our people, our technology, and our long term growth strategy. We believe [Thursday's] report from a short selling firm is primarily designed to drive down the stock price in order to serve the short seller's economic interests. We believe PureCycle is well-positioned to continue executing on its strategy to drive long term growth and enhanced value for shareholders."
What happened
Shares of newly public plastics recycling company PureCycle Technologies (PCT 5.00%) plunged Thursday after short-seller Hindenburg Research said the company "represents the worst qualities of the SPAC boom." As of noon EDT, PureCycle shares were down a hefty 40% on the day.
So what
PureCycle went public through a special purpose acquisition company (SPAC) merger earlier this year. The company was created to use proprietary technology licensed from Procter & Gamble (PG 0.04%) to recycle waste plastics for various potential applications. Hindenburg Research, which has disclosed a short position in the stock, called the company "the latest zero-revenue, ESG-themed SPAC to be taken public with a bold story about how it will someday 'revolutionize' the plastics recycling industry." The company has yet to respond.
Image source: Getty Images.
Now what
PureCycle grew out of a fluid extraction process developed by Procter & Gamble to purify waste polypropylene (PP), which is used for many consumer goods packaging applications, including shampoo and detergent. PureCycle says the resins its patented recycling process creates, and the resulting product quality, have been tested and validated by P&G.
Hindenburg challenges the validity of the technology, PureCycle's aggressive financial projections, and the track record of the SPAC sponsors. PureCycle has pushed back its timeline for initial revenue creation by two years, according to Hindenburg, which points out that even then a predicted $8 million in 2022 net revenue is being projected to grow to $224 million the very next year, and then to $2.3 billion in 2027.
Several companies that have recently gone public through SPAC mergers have also been aggressive with future predictions. It remains to be seen which, if any, will pan out. Investors should be sure to read Hindenburg's short report and decide for themselves if there is any action to take.
