Shares of Plug Power (NASDAQ:PLUG) have been on fire this year, rising more than 85% so far in 2019. Is PLUG stock enjoying a temporary high or is this sub-$5 “penny stock” poised to climb further?
Fortunately, investors can use technical indicators in a case like this. At least, that’s what I would recommend doing instead of buying PLUG stock blindly and hoping it delivers huge returns. Charts can do more than help predict price targets. They can also help determine the level of risk investors are taking and the prices at which they should buy stock.
Let’s explore the charts of PLUG stock a bit first, then discuss some of the fundamentals that kicked PLUG stock price into overdrive at the start of the year. Too many investors ignore either the fundamentals or the technicals. Blending them together often creates a more well-rounded investment thesis and helps identify superior opportunities.
Trading PLUG Stock
Click to Enlarge
PLUG stock put together a robust rally off its December lows, but lay dormant for most of January. That changed in February, when PLUG stock price began climbing, rising from $1.35 to $2.65 by mid-March. Since then, PLUG stock price has been moving between its $2.20 support and its $2.65 resistance.
These levels have set up a great trade between the range support of Plug Power stock and its range resistance. Nimble short-term investors can buy PLUG stock at its support and sell into its resistance. This trade has been working for months now. However, it’s bound to end eventually, and that will occur when the range breaks.
On the weekly chart above, some of the candles have a few long “wicks.” Below the current PLUG stock price, the wicks extend to $2.16 and $1.86, respectively. Above the current PLUG stock price, there were some runs to $2.86 and $2.87, respectively. However, PLUG stock price never ended any week above its range resistance or below its range support.
If PLUG stock eventually breaks out over its resistance or breaks down below its support, traders can bet on PLUG stock continuing the trend.
Meanwhile, investors can buy PLUG stock and use a stop-loss on a close below $2.20. Or they can wait for a move over the ten-week moving average and then buy the shares. PLUG has been below the ten-week for six straight weeks. But once PLUG stock exceeds that level, the shares can explode higher.
Evaluating Plug Power Stock
As you can see, the charts aren’t setting up all that badly for Plug Power stock. But let’s be honest: a stock does not trade for $2-and-change if there aren’t some concerns or issues about it. Granted, there are always one or two names that could be the next Advanced Micro Devices (NASDAQ:AMD) or Monster Beverages (NASDAQ:MNST). But all things being equal, we need to value PLUG stock based on its current fundamentals.
PLUG’s balance sheet doesn’t inspire a ton of confidence, although it’s not a deal-breaker either. Its total current assets of $166.4 million is roughly double its total current liabilities. However, its total assets of $396 million are barely ahead of the company’s $365.7 million of total liabilities.
Plug’s cash flows are improving, although both its operating income and free cash flow are still negative.
That said, PLUG is growing. Analysts, on average, expect its revenue to increase more than 25% this year to $231.3 million. The average top-line estimate for 2020 calls for an acceleration up to 32.7% growth and revenue of about $307 million.
But PLUG isn’t profitable yet. Analysts, on average, expect a loss of 36 cents per share this year, in-line with last year’s results. In 2020, they’re calling for an improvement, but still expect a loss of 21 cents per share.
Of course, all of this is predicated on the analysts actually being right, even though more times than not, that’s not the case. For those who want stronger fundamentals and less volatility, they should look elsewhere. For believers in PLUG stock, wait for the charts to confirm the beginning of a rally.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
