Trust Is Clearly Still a Problem for Plug Power Stock

Fuel cell developer Plug Power (NASDAQ:PLUG) has had a good 2019. The PLUG stock price has jumped 85% so far this year. Plug Power remains on track to deliver much improved full-year results.

Trust Is Clearly Still a Problem for Plug Power Stock

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A recent acquisition should expand its capabilities. But recently, Plug Power stock has pulled back, as PLUG stock price has retreated 13% in the last month.

And since touching an 18-month high in late May, PLUG stock price has dropped some 19%. There’s been little news about PLUG in the last six weeks, and the news that has surfaced looks positive for Plug Power stock. Broad markets are doing well, and risky tech bets ( PLUG certainly is in that category) appear to be holding up well.

So why has PLUG stock price declined? The problem appears to be trust. I wrote after the company’s Q1 earnings report in May that it looked like Plug Power was converting skeptical investors. The company reiterated its guidance after what looked like a weak first quarter, and investors reacted reasonably well to the news.

But the decline from the highs shows that the market retains some skepticism toward Plug Power. It’s up to the company itself to change that and if it can, PLUG stock finally might be able to hold its gains.

Good News Doesn’t Faze Investors

In the last six weeks, as PLUG stock has fallen, the company appeared to have delivered two pieces of reasonably good news. On June 11, the company acquired EnergyOr, a Montreal-based manufacturer of lightweight fuel cells.

EnergyOr’s offerings expand Plug Power’s addressable market into areas like robotics and drones. The acquisition doesn’t appear to be a huge one for Plug Power: the purchase price wasn’t disclosed, and the company hasn’t filed an 8-K about the acquisition (it would have had to file an 8K if the deal was reasonably large). Still, EnergyOr at worst appears to increase Plug’s potential.

Then, on Thursday, the next-to-last business-day of the second quarter, PLUG announced that it was poised to report record Q2 results. The company also reaffirmed its revenue and Adjusted EBITDA guidance.

Q1 results cast some doubt on the full-year guidance, and at least required the company’s  performance over the rest of the year to improve. Plug Power’s performance is improving,  yet PLUG stock price has risen only a few percent on the news.

What Can Push PLUG Stock Higher?

What investors seem to be saying is that good news isn’t enough to boost PLUG stock. That’s not necessarily a surprise. PLUG stock isn’t cheap; its EBITDA this year is guided to be only “positive,” not large. Plug Power stock still trades at a bit over two times the company’s sales; that’s not a cheap multiple for a manufacturer with gross margins that remain reasonably low.

And while PLUG seems a bit like a startup, it isn’t.  The company has been around for over two decades. Incredibly, as Bloomberg detailed, it took until last year’s fourth quarter for the company to post its first profit even on an Adjusted EBITDA basis. At its dot-com peaks, on a split-adjusted basis, PLUG stock price was over $1,000. It traded for over $6 in 2014.

Plug Power has shown signs of potential many times over the last 20 years. Each time, Plug Power stock has disappointed. And it’s simply going to take time for Plug Power to prove that this time is different.

And it might be. Partnerships with (NASDAQ:AMZN) and Walmart (NYSE:WMT) are impressive. (Amazon also owns a decent amount of Plug Power stock and warrants.) PLUG also is conducting a pilot test with FedEx (NYSE:FDX). At worst, the company seems to have a real business with a chance of generating substantial profits.

But it’s also a business that’s still valued at over $500 million. The value of the technology remains up for debate; Tesla (NASDAQ:TSLA) CEO Elon Musk has called the technology “fool cells” (although he was referring more to its application in vehicles than to Plug Power’s commercial products). And Plug Power still is a long way from generating real free cash flow.

It looked after Q1 like investors might finally trust Plug Power. It seems at the moment like that’s not entirely the case. Until that changes, PLUG stock may continue to be stuck.

As of this writing, Vince Martin has a bearish options position in Tesla. He has no positions in any other securities mentioned.


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