Plug Power (PLUG) has been on an absolute roller coaster ride in 2014. The beginning of this year saw the PLUG stock price experience wild fluctuations, rocketing from sub-$2 levels to more than $11 per share before coming back down to earth and settling in the $4-to-$6 range. And even after PLUG lost all that froth, shareholders who were in at the beginning of the year were sitting on 227% gains as of Tuesday’s closing bell.
But some of those returns were eroding Wednesday, with PLUG stock off as much as 15% in early morning trading. Faithfully following the lead of their fellow fuel cell manufacturer were FuelCell Energy (FCEL) and Ballard Power Systems (BLDP), both of which were down between 3% to 4% this morning.
So precisely what nugget of information was compelling enough to send the entire fuel cell industry down today? Let’s take a look.
Plug Power’s Third-Quarter Earnings Miss
With a stock as volatile as Plug Power, an earnings miss is all Wall Street needs to send the stock plunging. And PLUG didn’t just miss on profit estimates last quarter; it whiffed pretty big on revenue as well.
PLUG stock lost 6 cents per share in the third quarter, double the 3-cent loss analysts expected. Meanwhile, revenues came in at just $19.9 million, a far cry from the $24.4 million consensus estimate.
It’s no surprise that Plug Power stock is dropping like a rock today on those kinds of numbers. However, there are a couple other aspects of PLUG stock that investors should be aware of before thinking about adding the fuel cell maker to their portfolios.
The first has to do with the mechanics of financial markets: PLUG stock is missing out on a ton of institutional money — from mutual funds, private equity, hedge funds and the like — because of its low share price.
Before this morning’s meltdown, PLUG stock was just barely above the $5 per share mark, a price threshold that many institutional investors stipulate as the minimum price per share for any holding in its portfolio. You see the hesitation of institutional investors in its relatively low levels of institutional ownership, with just 28% of outstanding shares being held by big-time money managers.
For comparison, the top four publicly traded companies in the world by market cap — Apple (AAPL), Exxon Mobil (XOM), Microsoft (MSFT) and Google (GOOGL) — have institutional ownership between 51% and 79%.
The lack of institutional investment in PLUG has a couple of downsides. Namely…
- Big institutional money won’t be there to put a floor on PLUG stock in cases where money managers might normally buy on weakness.
- Institutional investing provides even more liquidity, giving investors more reasonable entry and exit prices. PLUG doesn’t have that.
But by far the biggest reason I’m bearish on PLUG stock is its lack of profitability. At a market cap of $885 million at yesterday’s close, shares trade at seven times next year’s sales … but we can’t delve into PLUG stock’s P/E ratio because it doesn’t have one.
That wouldn’t be a concern if this was some newly public startup ramping its way to growth, but Plug Power has been public since 1999, and is only recently starting to right the ship after more than a decade of declines. Even then, it’s only shaving its losses — PLUG still will lose money in 2014, and Wall Street doesn’t see it making money in 2015, either.
Sure, sales growth in the most recent quarter was meteoric, more than quadrupling from the same period one year ago. But there are simply too many good stocks out there that actually make money, today.
There’s no sense in taking a flyer on this speculative fuel cell company.
As of this writing, John Divine held shares of AAPL stock, GOOGL stock and GOOG stock. You can follow him on Twitter at @divinebizkid.
