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On March 16, Plug Power (PLUG) notified its investors that its 2018 and 2019 financial statements were materially misstated due to lease accounting errors. Although investors deplore restatements, they remain in the dark until PLUG restates its financials and discloses the amount of these errors. Without knowing how this misstatement will impact PLUG’s financial statements and share price in the months to come, investors continue to play blindly on the stock.

PLUG isn’t alone in its struggle to correctly account for leases. Over the last decade, 40 firms have restated their financial statements due to material lease accounting errors. Benefitfocus’s stock in 2014 and Roadrunner Transportation Systems and Celadon Group’s stocks in 2017 tanked after their lease misstatements and today still trade at a mere fraction of their pre-misstatement prices. On the other hand, Kohl’s currently trades at 155% of its price on the day before its 2011 lease misstatement. Of the 40 lease misstatements in the last decade, one-year market-adjusted stock return data is available for 25 firms. Relative to the market, stock returns underperformed for 14 of these firms (by as much as -68%), while investors enjoyed above-market returns (up to +80%) for the remaining 11 of 25. This goes to show just how differently lease misstatements affect different firms.

While we wait for PLUG to disclose the magnitude of its restatement, investors can benefit from several indicators on PLUG's 8-K Item 4.02 filing to help assess the impact of this error (https://www.ir.plugpower.com/Financial-Information/SEC-Filin...). At least four indicators provide current investors with reasons to stay plugged in. First, there is no indication that PLUG’s misstatement was prompted by an SEC investigation. Second, there is no indication that PLUG’s misstatement arose because of fraud or intentional irregularities. Third, neither PLUG’s auditor, management team, nor any of its directors, have been fired as a result of this misstatement. Fourth, although a number of class action lawsuits have been predictably filed after PLUG’s misstatement, no class of plaintiffs has yet been certified by a court.

Investors may also benefit from analysts’ perspective on this error. However, of the 13 analysts named on PLUG’s website (https://www.ir.plugpower.com/Investor-Resources/Analyst-Cove...), only five have revised or reiterated their pre-misstatement price targets so far (Street Fight: Analysts diverge on Plug following financial restatement news – The Fly – March 17th, 2021: https://thefly.com/landingPageNews.php?id=3268246&headli...). Even after these cuts, the average of these five analysts’ price targets remains $60.20, much higher than PLUG’s current stock price of $36 at the time of this writing. To the best of my knowledge, the remaining eight analysts have not yet seen fit to respond to this misstatement.

Ultimately, we’ll have to wait until PLUG restates its financials to learn how large of an accounting charge this will be, but based on the context and history of prior firms with lease misstatements, I wouldn’t unplug just yet.

Daniel Street, Ph.D.
Assistant Professor of Accounting
Bucknell University, Lewisburg, Pa.
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