In a recent (March 19, 2014) 13D filing with the SEC (SEC website:link), the company gives the details of its extremely-generous issuance of preferred stock to Air Liquide; preferred shares which will likely be converted into 10.97ML common shares of PLUG in 7 weeks hence (May 8, 2014).
The potential profit for Air Liquide is enormous: a $68.1ML return on a $2.6ML investment. If it happens (and I see no reason why it wouldn't) the conversion would bring about a 9.4% dilution in shareholder equity.
The important thing for investors in this 13-D filing is it sheds light on the company's capital structure regarding share counts.
Article 2 - Representations and Warranties of the Company
2.3 Capitalization. As of May 8, 2013, the authorized capital stock of the Company consists of:
(A) 245,000,000 shares of Common Stock, of which 64,036,405 shares were issued and outstanding,
(B) 170,000 shares of Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share, none of which were issued and outstanding, and
(C) 4,830,000 shares of undesignated preferred stock, par value $.01 per share, none of which were issued and outstanding.
Options to purchase an aggregate of:
1,999,521 shares of Common Stock were outstanding as of May 8, 2013, and
Warrants to purchase an aggregate of 39,662,889 shares of Common Stock...(were outstanding as of May 8, 2013).
- 18,846,500 issued February 20, 2013 at a current exercise price of $.15 per share of Common Stock,
- 1,891,000 issued February 20, 2013 at a current exercise price of $.18 per share of Common Stock and
- 18,925,389 issued May 25, 2011 at a current exercise price of $1.13 per share of Common Stock
And of the warrants associated with these equity raises?
When converted to common shares, they will have a further diluting effect on a company that has lost money for 15 years. Any new profits will be watered down by the escalating share count.
The pattern is unmistakable: management exchanges PLUG shares to attract capital in order to keep the company afloat; and in the process, dilutes the capital structure of Plug Power ("the company") owned by the existing shareholders. This is partly why Plug Power has a negative book value per share.
The preferred shares [listed above in 2.3 a.b.c,] could be held in reserve for future equity raises (for deals pitched to more professional investors) so that the game of PLUG and dilution continues apace.
The equity raises are pyramided on the expectation that a further rise in the share price - and a thundering herd of true-believers - will support the stock. But one wonders if those who go unquestioningly along with this herd will discover later they skirted with dangerous or even fatal financial consequences.
The Rise in PLUG is Much Greater Than You Think
Plug Power and the fuel cell mania have been the subject of several Seeking Alpha articles by the authors of this commentary, a list of which can be found at the end of this article 1. A significant fact within those articles is the meteoric rise in the share price of PLUG.
Rising from a low of just $0.15 in May, 2013, it peaked on March 11, 2014 at $11.72 intraday. That represents a 78-fold increase in the price of the stock in just 10 months. We question whether any business could increase its true future value 78 times in less than a year.
The value of a business takes into consideration more than just the value of the share price; it also considers the number of shares outstanding, and the number of options and warrants which possess the right to be converted into shares. When you gauge the rise in PLUG with this metric, the share-count assumes a much greater importance than it first appears. The adjusted earnings PLUG uses is EBITDAS (earnings before income taxes, depreciation, amortization, and stock based compensation).
PLUG has taken advantage of its remarkable popularity to repeatedly issue more shares in its stock. Most of these issuances included a number of warrants which further increased the fully-diluted share count. In fact, when you combine the increased share count with the increased share price, you get a staggering increase in the market cap of the company, far beyond its 78-fold increase in share price.
Since May, 2013, Plug Power has issued common shares or warrants, options and convertible securities that could be converted into common shares totaling just under 100 million shares. That represents a 70% dilution to existing shareholders. This includes the convertible preferred shares issued to Air Liquide that can be converted to over $60 million of common stock in May of this year.
With the most recent share issuance announced in the prospectus of March 6, 2014, the company has a fully diluted share count of 137.3 ML shares.
At the peak on March 11th, 2014, that translated to a market cap of over $1.6 billion. This represents a 227-fold increase (not just 78x) fold increase in value due to all of the share, option and warrant issuance! It is staggering to consider any company could possibly increase that much in value in just 10 months.
Not surprisingly, PLUG stock has dropped dramatically since its peak on March 11, 2014. In fact the stock had already fallen by half on March 21, 2014. But even after declining by half, the value of the company is still "up" 110 times from its lows, when all share dilution is considered.
For those investors who think that now is the time to pick up a half-price bargain in PLUG, think again.
- The fully diluted value of the company has increased by a factor of 110 times from its low of 10 months ago.
- Its current price represents a market cap of over $800 million for a company that does not earn a profit.
- There is a distinct possibility that a substantial number of newly-minted shares will hit the market in early May, 2014 with the conversion of the Air Liquide preferred stock.
PLUG has risen more than most investors realize; and we continue to think it could fall further than many understand.
Here is a performance table (1 year):
|May 6, 2013||$0.15||June 11, 2013||$0.51||+$0.36||+ 240%||24|
|June 11, 2013||$0.51||July 3, 2013||$0.28||-$0.23||- 45%||16|
|July 3, 2013||$0.28||Sept. 9, 2013||$0.76||+$0.48||+171%||48|
|Sept. 9, 2013||$0.76||Nov. 6, 2013||$0.45||-$0.31||-41%||43|
|Nov. 6, 2013||$0.45||Dec. 6, 2013||$2.25||+$1.80||+300%||23|
|Dec. 6, 2013||$2.25||Dec. 31, 2013||$1.55||-$0.70||-31%||16|
|Dec. 31, 2013||$1.55||Jan. 8, 2014||$4.55||+ $3.00||+194%||5|
|Jan. 8, 2014||$4.55||Jan. 27, 2014||$2.61||-$1.94||-43%||12|
|Jan. 27, 2014||$2.61||Mar. 11, 2014||$11.72||+$9.11||+350%||32|
|Mar. 11, 2014||$11.72||May 21, 2014||$5.94||-$5.82||-50%||8|
Note: Christopher Wallace, Seeking Alpha contributor, assisted with this article.
1. Previous Articles
- Pulling The PLUG On The Fuel-Cell Mania, by John Gilluly, March 7, 2014
- The Trading Characteristics Of Market Manias, by John Gilluly, March 9, 2014
- The Fuel Cell Fab Four: A Bubble About To Burst?, by Christopher Wallace, March 10, 2014
- A Requiem For Plug-Mania, by John Gilluly, March 13, 2014
- Playing PLUG Power, by John Gilluly, March 16, 2014
- Kandi Technologies: The Latest Bubble Stock? by Christopher Wallace, March 18, 2014
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in PLUG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.