Stock short-selling firm Hindenburg Research attacked chemical recycling company PureCycle Technologies LLC in a May 6 report, questioning its financial projections and technology.
Hindenburg, which said it has taken a short position in PureCycle stock and could benefit financially if share prices decline, also questioned the special purpose acquisition company vehicle, or SPAC, the firm used to go public.
"We spoke with multiple competitors and industry experts who explained that PureCycle faces steep competition for high quality feedstock, and called the company's financial projections into question," Hindenburg said.
PureCycle shares closed down nearly 40 percent in trading May 6, to $14.83. The company opened trading at $32.69 on March 18, its first day listed on the NASDAQ stock exchange, and did not trade below $23.15 before May 6.
In a statement released in the evening on May 6, the company defended its strategy and said Hindenburg "by its own admission," will benefit if PureCycle's stock price drops.
"We remain confident in our people, our technology, and our long term growth strategy," PureCycle said. "We believe today's report from a short selling firm is primarily designed to drive down the stock price in order to serve the short seller's economic interests.
"We believe PureCycle is well-positioned to continue executing on its strategy to drive long term growth and enhanced value for shareholders," it said.
PureCycle uses a solvent-based purification technology licensed from Procter & Gamble Co., which it says can clean waste PP and turn it into virgin-like material.
Hindenburg questioned practices of both of the investment banks that acquired the recycling company in November 2020, Roth Capital Partners LP and Craig Hallum Capital Group LLC, and the special purpose investment vehicle they used to take it to public markets, Roth CH Acquisition Co. Inc.
Both investment firms are the only two investment banks that have issued research on PureCycle, according to Hindenburg, and both list it with a "buy" with targets between $45 and $48 a share.
Hindenburg said both firms have received "founders shares" for a little more than one penny a share.
It said Craig Hallum issued its "buy" rating the day of the SPAC merger, rather than observing a quiet period in traditional initial public offerings. As well, it pointed to Roth's role in bringing "numerous Chinese companies public on U.S. exchanges that later imploded after fraud allegations."
The short-selling research firm also pointed to what it said were bankruptcies, delistings and sharp stock value declines among previous listed companies that PureCycle executives were involved with.
"Over $760 million in public shareholder capital was incinerated in the process," Hindenburg said.
In the November acquisition announcement, Orlando, Fla.-based PureCycle said it had plans to greatly expand capacity, beginning in 2023 with a pilot facility in Ironton, Ohio, that is slated to be brought to full capacity, and a plant in Europe. Each of those facilities would have about 100 million pounds capacity.
It said it planned rapid expansions after that to bring the company to 1.2 billion pounds of capacity in five years.
Hindenburg pointed to revisions to PureCycle's commercialization timeline as evidence to question the viability of its technology.
It noted a PureCycle statement in 2017, for example, that it planned to have a commercial-scale facility in Ironton by late 2020, but company officials are now pointing to late 2022 at the earliest, Hindenburg said.
It also questioned profitability assumptions PureCycle offered, arguing that plastics recycling is traditionally an economically challenging business.