Shares of Plug Power (PLUG) - Get Report dropped Wednesday after institutional investor Kerrisdale Capital announced a short position in the hydrogen-fuel-cell maker, which has shot to a nearly $40 billion valuation in recent months.
In a letter announcing the short position, the New York investment manager cites Plug's valuation while saying that the company generated a "paltry" $300 million of revenue in 2020.
The stock trades at 40 times Plug's revenue projections for 2024, which Kerrisdale calls "aggressive."
"But it’s all just a pipe dream, because 'green' hydrogen is too expensive and too inefficient to produce, store, transport, and burn," the firm's letter stated.
"That’s not because of manufacturing inefficiencies or an imaginary technology S-curve that has yet to be scaled. It’s because of the laws of physics, which we don’t expect Plug can successfully defeat."
Plug's short interest is 16%, according to S3 Partners, with the shares up more than 1,400% over the past 12 months.
Currently, Plug's lone positive business segment is its hydrogen fueled forklifts, which is "almost comical" considering its valuation, according to Kerrisdale.
Despite its stance that the forklift industry isn't large enough to justify Plug's valuation, the firm does say there is a $30 billion total addressable market and 1.5 million annual forklift purchases.
But hydrogen fuel cells are destined to lose out to lithium ion batteries, which Kerrisdale says "have already demonstrated their value proposition for forklifts and are quickly coming to dominate the market."
Kerrisdale also throws cold water on the partnerships Plug has signed in the past two weeks, calling them a sign of weakness rather than strength.
"These 'major' deals should be seen in the context of all the past 'major' deals that never panned out," Kerrisdale said.
Plug shares at last check dropped 7.7% to $61.35.