Plug-in power supplies tumble on widespread accounting errors. What to know.

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Hydrogen fuel cell company

Plug power

revised financial statements of the past few years due to widespread accounting errors, causing a major sell-off Wednesday.

Plug (ticker: PLUG)’s share previously traded at around 11% to around $ 38 per share. The S&P 500 drops by about 0.5%. The Dow Jones industrial average is slightly higher.

In a statement, the company said the errors were related to complicated financial accounting at customers, loss estimates for employment contracts and classification of expenses on its income statement.

Plug was not immediately available to quantify or clear the adjustments.

Investors hate accounting adjustments. It can undermine trust in any company. In fact, all investors need to value and evaluate companies.

Cowen analyst Jeffery Osborne does not appear to be concerned about the errors. He reiterated his buy rating on Plug stock on Monday. “We view the weakness as a unique buying opportunity,” Osborne wrote. “Although the repetition of the results is never positive, the cause of the reassessment has nothing to do with future growth markets, and we note that there was no cash impact.”

Osborne is focused on customer contract accounting. Some customers, namely

Walmart

(WMT) and

Amazon.com

(AMZN), has warrants to buy Plug shares, an arrangement that led to negative sales in the fourth quarter. In essence, the warrants became so valuable that customers received equipment for less than nothing. Plug shares rose by almost 1,000% in 2020, which is why the warrants were so valuable.

However, Truist analyst Truistan Richardson downgraded Plug Shares on Wednesday to like Buy, lowering its stock price target to $ 42 from $ 65. ” , we see limited upside to the solution, “the analyst wrote in a report on Wednesday.

However, the issue of income / warrants may not be the main reason why stocks are lower. Plug also shifts spending from research and development to the cost of goods sold. The total impact on profit margins is nothing, but the change does reduce the gross profit margins, which is important for investors, because gross profit margins are used to get an idea of ​​how profitable a business can be. The company does not yet earn full profits.

‘It’s usually not that difficult to determine whether costs are above or below the [gross margin] line, such a recovery in such a case is always a bit disturbing, “says Robert Willens Barron’s.

Willens did not look at the Plug restatement, but did look at very difficult accounting situations. ‘Since loss [estimates] This is a bad sign that KPMG has the necessary expertise to evaluate the value of service contracts. The fact that KPMG had to step in and question the scope of the company’s loss solutions.

For now, investor agrees with the sentiment.

Write to Al Root at [email protected]