There’s a good chance that the market for alternative forms of energy will remain a popular topic. As long as companies like Tesla Motors, Inc. (NASDAQ:TSLA) continues to push the needle and drive innovation, Wall Street will take an interest.
But not every company focused on alternative energy will thrive — a tough lesson investors in Plug Power Inc. (NASDAQ:PLUG), a manufacturer of fuel cell systems, have had to learn of late.
A Mixed First Quarter
PLUG stock was up some 6% late Monday despite the fact that Plug Power reported first-quarter results Monday that showed a wider loss from the year-ago quarter. Revenues, despite improving almost 70% year-over-year, still missed estimates by almost $9 million.
For the quarter that ended March, the fuel cell maker reported a loss of $11.1 million, or 6 cents per share. On an adjusted basis, when excluding one-time gains and costs, the net loss was a penny wider at 7 cents, matching Wall Street estimates.
It’s not hard to see where any profits would have gone.
Total administrative costs, which included research and development expenses, more than doubled to $10.7 million in the first quarter, topping last year’s mark of $5.1 million. PLUG ended the quarter with just a little over $131 million in cash and cash equivalents, down 10% YoY from cash of $146.2 million. And in terms of net working capital? That was down 7% to $155.7 million.
“The backlog for our products and services continued to grow in the first quarter. This has provided us with a high level of confidence in meeting this year’s financial projections,” said CEO Anthony Marsh in a statement.
But here’s the thing: Revenue was up 68.8% year over year, reaching $9.4 million, driven by 265 GenDrive unit sales and one hydrogen fueling station. But very little of this revenue had a chance of making it to the bottom line, suggesting PLUG is spending money faster than it can make it.
Optimal Selling Opportunity
Plug Power’s top-line miss and bottom-line meet suggest that expectations remain unrealistic, which doesn’t bode well for PLUG stock.
Immediately after results were released, Plug Power shares dropped 4.5% to hit another 52-week low at $2.32, but shares rebounded to as much as 9% in the black.
From my vantage point, this is great selling opportunity for investors looking to recover from prior losses.
While this is a company investors have always wanted to love, PLUG stock — down 15% YTD and 30% over the past 52 weeks — has always been highly speculative. Investors who bought in at 2013 lows and held through the peak in early 2014 realized gains of as much as 3,500%. Longer-term investors who have placed bets on the company’s bread-and-butter GenDrive product in the past five years and have held PLUG stock, are in the hole more than 50%.
Why? PLUG’s prospects continue to be overestimated.
PLUG, which has been in existence since 1997, manufactures fuel cell products — the type that replace lead-acid batteries in vehicles and industrial trucks. One of its biggest customers is Wal-Mart Stores, Inc. (NYSE:WMT), which uses forklifts to move warehouse goods.
Monday’s first-quarter results do show that the company’s products are still in demand, but what good is 70% sales growth if the company is utterly unable to tamp down such lofty expectations?
That’s what makes the difference between a good company and a good investment.
I will grant that Plug Power is “building for the future.” And the company’s GenDrive units are starting to gain traction, given that management has maintained its guidance for 2015.
But that does not make PLUG stock a solid investment today. Investors would be better served selling into Monday’s 8% move and venture on to stocks with better prospects.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
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