What happened
Plug Power (PLUG 1.26%) stock is in free fall. After losing more than one-third of its value in August, shares of the hydrogen fuel cell maker slumped by another 10.2% in September, according to data provided by S&P Global Market Intelligence.
If the August decline was tied to a bad quarterly earnings report, it was an ongoing investigation by the Securities and Exchange Commission (SEC) that spooked investors in the hydrogen stock last month.
So what
In March 2021, Plug Power announced that it would restate its previously issued financial statements for the fiscal years 2018 and 2019, as well as its quarterly filings for 2019 and 2020, because of several accounting errors. That led to an investigation by the SEC, and it's only now that Plug Power has settled the matter. However, it isn't over just yet.
NASDAQ: PLUG
Key Data Points
On Aug. 30, Plug Power announced a settlement with the SEC and agreed to pay a penalty of $1.25 million after its remedial actions initiated since 2021 were accepted by the regulator. However, Plug Power also said that it still has to "fully remediate its material weakness" and publicly disclose it within one year of the order. If it fails to do so, it will have to pay an additional fine of $5 million.
Simply put, Plug Power's financial statements may still not be entirely reliable since the "material weakness" being referred to relates to inefficient internal controls over financial reporting. In my view, persistent inefficiencies in financial reporting are a red flag, especially for a company that has failed to turn a profit even after 25 years of existence.
Now what
Plug Power is a front-runner in the green hydrogen business, offering end-to-end solutions from production and storage to the delivery of hydrogen to end users. Plug Power's foothold in the high-potential clean hydrogen industry even encouraged analyst Samantha Hoh from HSBC to initiate coverage on the hydrogen stock last month with a buy rating and a price target of $11 per share.
Investors in Plug Power, however, are miffed, especially after the company reported a huge quarterly loss some weeks ago. Plug Power's revenues surged 72% year over year in the second quarter to a record high, but its gross loss more than doubled, and it burned through cash rapidly in the quarter.
Although Plug Power expects its gross margins to rise substantially in the second half of the year, investors may have to wait until at least November for the company's third-quarter earnings report to see where its margins are really headed.
