Plug Power (NASDAQ:PLUG) stock jumped more than 7% on Wednesday, hitting new 52-week highs in the process. With U.S. stock markets at all-time highs and with Plug stock trading well, bulls are wondering if it’s a name to bet on this year.
That said, PLUG stock is up 13% in just the last five trading sessions and has soared well over 300% from its December 2018 lows.
It comes down to a question of momentum.PLUG’s financial situation is not strong. But it does have momentum on its side right now, both in terms of revenue growth and the trajectory of PLUG stock price. For some investors, that’s all that will matter.
Breaking Down the Numbers
The first three lines of the company’s last income statement shows that PLUG is not extremely profitable. The company’s revenue over the preceding 12 months was $191.8 million, but its cost of revenue was $178.7 million, leaving just $13.15 million of gross profit. That’s before accounting for numerous expenses like sales, general, and administrative, R&D, interest, and taxes.
All told, Plug’s net income over the preceding 12 months was -$90.5 million.
Because it has such thin gross margins, Plug Power is in a tough position right off the bat. Obviously companies like Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL) and MasterCard (NYSE:MA) have completely different businesses than PLUG, but all of those other companies have high gross margins. As a result, they still earn a big chunk of change despite their high expenses.
Plug Power’s woeful financials go beyond the income statement, though. The company generates negative operating and free cash flow, and its balance sheet could use a hand.
As of its most recent reported quarter, PLUG had $43.2 million of cash on hand. Its total current assets are worth $196.8 million — roughly 40% of which, or $80.6 million, is inventory. With current liabilities of $126.3 million, Plug Power won’t run out of money tomorrow. But it could use a little more breathing room when it comes to liquidity.
PLUG’s total assets and total liabilities are even closer together. They stand at $556 million and $543.9 million, respectively.
So why does PLUG stock have so much momentum?
Its gross profit jumped 66% from fiscal 2017 to FY18. Through the first three quarters of 2019, its gross profit has more than tripled versus 2018. Analysts, on average, expect its revenue to climb 27.6% in 2019. And in 2020, analysts’ average estimate calls for its sales to jump another 30.8% to $308 million.
That momentum is driving Plug Power stock.
Trading PLUG Stock
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A look at the chart of PLUG stock reflects the momentum of the clean energy company. Starting with its August lows, investors have bought the shares each time they fell to their uptrend support (depicted by the blue line). More recently, the 100-day moving average has been acting as support as well.
Earlier this month, PLUG stock exploded higher, pausing near $3.80, then pushing north of $4.00. That is where the shares petered out in late November, before pulling back to a low of $2.75. Those price movements — from $4 to $2.75 and back to $4 in about five weeks — emphasize how volatile this name can be.
If PLUG stock falls below $4, the $3.75 level is in play. If that level fails to hold, the 50-day moving average of $3.24 is on the table, followed by the 100-day moving average and the shares’ uptrend support level.
Make no mistake about it, though. While Plug Power stock has momentum on the charts and while its gross profit and revenue are improving, it is far from a strong company. It’s fine if investors let a stock’s technicals or its fundamentals drive their decisions, but they should be aware of both angles if they’re looking to buy or are already holding PLUG stock.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL.
