PureCycle Technologies (PCT 4.84%) went public in March to raise capital for its plan to use technology licensed from partner Procter & Gamble (PG -0.06%) 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.
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."
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.