Short-Seller Citron Research Slams Plug Power

Jacob Harper  |

On Mar 11 the hot tech property Plug Power Inc. (PLUG) dropped nearly 40 percent amid nine times normal volume as a prominent short-seller said the company was wildly overvalued.

Citron Research, which is essentially the one-man operation of analyst Andrew Left, said the fair market value of Plug Power is 50 cents a share. Of course, this is significantly lower than the nearly $12 a share the stock was trading at when the day began.

Left further accused the lone analyst to cover Plug Power, Rob Stone of Cowen, of less-than-honest appraisal of the company. Cowen and Co. gave Plug a “buy” rating and a price target of $5.50 a share. However, Cowen also facilitated an offering of Plug Power.

Left called Stone a “company man,” alleging in his nine-page report that Plug’s rapid rise is not attributable to innovative technology nor competitive edge, but rather good old-fashioned collusion and investor over-exuberance.

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Citron Research specializes in short-selling, and has previously called out small plays like China New Borun (BORN) for fraud. While that allegation never panned out, a more recent one has stoked considerable interest.

On Feb 18 Citron targeted over-the-counter medicinal marijuana stock Medbox, calling them a “complete fraud.” Less than a month later, shareholder rights law firm Robbins Arroyo LLP launched an official investigation into the company.

The crux of Left’s argument is that Plug Power is a “casino stock” in his words, and not nearly as legitimate as it has presented itself in projections. There is little question to the fact that Plug Power trades many times over earnings. But that does not necessarily mean their price run is unsustainable. quantitative analyst Nicholas Bhandari pointed out that tech plays almost never trade at what Left calls “fair market value.”  And even if they did, Bhandari says, it does not apply at all to Plug Power’s current valuation. Bhandari explained that, “When fundamentals are not a driving factor in the stock price, and price movement is politically and environmentally driven, giving a ‘fair market value’ is nonsensical.“

Regardless of the impact of fundamentals, the market responded quite unfavorably to Left’s evidence. Shares of Plug plummeted 41.36 percent to hit $6.05 a share.

Plug Power reports earnings after the bell on Mar 13.

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