Founded in 2015, PureCycle Technologies, Inc. (PCT) in Orlando, Fla., is an advanced recycling company that is revolutionizing the use of plastic waste to produce recycled polypropylene (PP). The company went public in March 2021 through a special purpose acquisition company (SPAC) transaction. The plastic recycling firm was criticized by a research firm, Hindenburg, which alleged that the company committed fraud by misleading investors about its technology and making wild revenue forecasts. In response to this allegation, a PCT spokesperson stated, “We believe PureCycle is well-positioned to continue executing its strategy to drive long-term growth and enhanced value for shareholders.”
Several legal firms have launched investigations into PCT for alleged securities fraud while offering to represent investors in potential litigation. For example, in December 2021, Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, encouraged investors to contact the firm because it is investigating potential claims against PCT following a class action complaint that was filed against PCT on May 11, 2021. The suit concerns whether PCT’s board has breached its fiduciary duties to the company. Other law firms have been investigating the company on similar grounds.
Shares of PCT have slumped 74.1% in price since the company went public. The stock has plummeted 64.6% over the past year and 12.6% year-to-date to close yesterday’s trading session at $8.36.
Here is what could shape PCT’s performance in the near term:
Zero Revenue Company
PCT has not generated operating revenue and expects to begin to generate revenue by the end of 2022.
Its net loss for its fiscal year ended Dec. 31, 2021, was $77.50 million, which represented a 46.3% increase year-over-year, while its total comprehensive loss increased 46.7% from its year-ago value to $77.74 million. In addition, its net cash used in operating activities grew 203.6% year-over-year to $54.51 million. Also, its cash and restricted cash balance stood at $263.86 million, down substantially from its $330.57 million year-ago value.
Lackluster Returns
PCT’s negative 66.58% trailing-12-month ROE is substantially lower than the 12.79% industry average, while its negative 14.36% ROA compares with the 5.33% industry average. Also, its negative 15.71% trailing-12-month ROTC compares with the 7.51% industry average.
Stretched Valuation
In terms of forward EV/Sales, PCT is currently trading at 206.71x, which is 11,828.4% higher than the1.73x industry average. Also, its 224.44 forward Price/Sales ratio is 15,674% higher than the 1.42 industry average. PCT’s 7.24x forward Price/Book is 207.5% higher than the 2.35x industry average.
Unfavorable POWR Ratings
PCT has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an F grade for Quality, which is consistent with its negative ROE, ROA, and ROTC.
PCT also has an F grade for Value. Its stretched valuations justify this grade.
Among the 88 stocks in the Industrial - Services industry, PCT is ranked last.
Beyond what I have stated above, one can also view PCT’s grades for Sentiment, Growth, Momentum, and Stability here.
View the top-rated stocks in the Industrial – Services industry here.
Bottom Line
“PureCycle remains intently focused on executing against its strategic growth plan and advancing the sustainable plastic revolution through our unique purification process,” Mike Otworth, PureCycle’s Chairman and Chief Executive Officer, said. However, the company’s zero revenue position is concerning. Moreover, the stock looks overvalued at its current price level, considering its bleak financial profile. Thus, I think it would be wise to avoid the stock now.
How Does PureCycle Technologies, Inc. (PCT) Stack Up Against its Peers?
While PCT has an overall POWR Rating of F, one might want to consider investing in the following Industrial – Services stocks with an A (Strong Buy) rating: PT United Tractors Tbk (PUTKY), Koç Holding A.S. (KHOLY), and DLH Holdings Corp. (DLHC).
Click here to check out our Industrial Sector Report for 2022
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PCT shares were unchanged in premarket trading Thursday. Year-to-date, PCT has declined -12.64%, versus a -3.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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