Please ensure Javascript is enabled for purposes of website accessibility

Why PureCycle Technologies Stock Plunged 32.5% in May

By Howard Smith - Jun 7, 2021 at 9:17AM

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

Shares fell after a short-seller report attacked the plastic recycler's management and its technology.

What happened

PureCycle Technologies (PCT -8.35%) went public in March to raise capital for its plan to use technology licensed from partner Procter & Gamble (PG -0.03%) to recycle waste polypropylene (PP) into virgin-like recycled PP. After a short-seller report attacked several aspects of its strategy, PureCycle shares plunged in early May. For the full month, shares dropped 32.5%, according to data provided by S&P Global Market Intelligence.

So what

PureCycle is trying to clean up a large waste stream and at the same time address the needs of a huge market. According to the company, PP represents 28% of global polymer demand. Shares sank, however, when Hindenburg Research, which has disclosed a short position in the stock, called the company the latest zero-revenue, environmental-themed special purpose acquisition company to go public "with a bold story about how it will someday 'revolutionize' the plastics recycling industry."

Woman in a lab coat in front of pile of empty plastic bottles.

Image source: Getty Images.

Now what

The company responded by saying that the report was strictly intended to financially benefit Hindenburg. It added: "We remain confident in our people, our technology, and our long term growth strategy. ... We believe PureCycle is well-positioned to continue executing on its strategy to drive long term growth and enhanced value for shareholders."

PureCycle grew out of a fluid-extraction process developed by Procter & Gamble to purify waste PP, which is used for many consumer-goods packaging applications, including shampoo and detergent. PureCycle says the resins that its patented recycling process creates, and the resulting product quality, have been tested and validated by P&G. The short-seller report challenged the validity of the technology and PureCycle's aggressive financial projections. 

The company reported its first public financial update later in the month, saying construction of its first factory is on track, and engineering is ongoing for a second plant. PureCycle also said the $570 million in cash on its balance sheet will meet the needs to complete construction for the initial factory, as well as for initial funding needed for the additional plant. 

CEO Mike Otworth reiterated the company's confidence in its technology, scalability, and manufacturing capabilities. "This technology has been evaluated extensively by an independent engineering firm as well as PureCycle's strategic partners," he said. "Furthermore, the technology was invented by P&G and is protected through an extensive patent portfolio."

Investors will have to judge for themselves if Hindenburg's motives were purely financial, or if some of the details in the report ring true. Until the first plant is generating cash, investors will have to take management's word based on prior trials and lab data. But speculative investments always come with high risks, seeking higher rewards.

Howard 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.

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

The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$149.73 (-0.03%) $0.04
PureCycle Technologies, Inc. Stock Quote
PureCycle Technologies, Inc.
PCT
$8.89 (-8.35%) $0.81

*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
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

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.