In the turmoil that is the markets today, hydrogen fuel cell specialist Plug Power (NASDAQ:PLUG) stands in a remarkable position. On one hand, the extreme volatility that the coronavirus from China has caused didn’t spare PLUG stock. Against the closing high of this year, shares dropped nearly 41% by the Mar. 13 session. But on the other hand, they were still up 5% for the year at that time.
Therefore, the see-sawing action sends both a compelling and cautionary message to investors. On the positive front, I can appreciate why PLUG stock would attract contrarians. Between the beginning of last October to the peak Feb. 19 session, shares skyrocketed nearly 128%. You can make the argument that only a black swan event – the coronavirus – hurt momentum. Otherwise, Plug Power would have trucked onward.
Further, while the pandemic is a serious problem, all crises eventually fade. When it does, the bulls reason, PLUG stock will resume its impressive trajectory.
Another selling point about this discount is growing sentiment for renewable and alternative energy sources. According to a Pew Research Center survey in October 2016, a strong majority of American adults favor solar and wind farms. Granted, Plug Power is in the hydrogen fuel cell business, which isn’t exactly renewable. However, their hydrogen-powered catalysts don’t give off harmful emissions, which is really the heart of the issue for the public.
Just as importantly, if not more so, companies are jumping on the environmental, social and governance (ESG) bandwagon, as InvestorPlace contributor Nicolas Chahine noted. With corporate and social trends shifting in the right direction, Plug Power stands to benefit.
So, PLUG stock is an easy buy, right?
PLUG Stock Surrounded by Multiple Variables
Under the best of circumstances, I believe even ardent bulls must admit that Plug Power is a speculative investment. Along with its wild trading history, the company doesn’t exactly have the most stable financials. And in the alternative energy space, we find no shortage of competitors.
However, the speculative case was a lot cleaner in circumstances that didn’t involve the coronavirus. With it, I’m not sure if the risk-reward situation is worth gambling on.
Ironically, this smallest of headwinds in the literal sense has imposed dramatic shifts in the global economic framework. First, companies the world over can kiss their first quarter of 2020 goodbye. From restaurants to especially industries dependent on Chinese supply chains, their sales will take a huge hit. Worse yet, most of those lost sales cannot be made up. From a broader perspective, weakening companies among Plug Power’s clientele doesn’t help either party.
A more direct impact to PLUG stock, though, is the fraying relationship between Saudi Arabia and Russia. When the worsening outbreak severely deflated oil prices, the Saudis proposed a cooperative production cut with the Russians. However, the Russians balked, in part because their oil companies’ revenue growth was limited in the last such deal.
Unwilling to comply this time around, oil prices dipped severely due to the prospect of a price war between the two oil-rich nations. With so much supply on the table, traditional energy sources now look mighty attractive.
Yes, the ESG movement has gained steam. However, with companies straining under economic pressure, I can’t imagine they’ll eschew the immediate savings of not going ESG. While that doesn’t look great from a PR perspective, executive teams have an easy out: explain that it was either environmentalism or layoffs.
Never an Easy Investment
Amid the twists and turns of PLUG stock, we should remember the bigger picture: Plug Power was never an easy investment to begin with.
If we didn’t have the pandemic and especially the resultant panic to worry about, prospective buyers would find plenty of reasons to raise eyebrows in the company’s financials. For instance, StockRover.com’s research report indicates high stock-based compensation, which can dilute shareholders. Plus, they’ve issued stock like crazy to fund operations, which is a warning sign.
Finally, buyers should be aware of the high short percentage against PLUG stock. Given the high-stress environment, this metric should take more prominence than usual.
Now, if I knew for certain that the economy will brush away the coronavirus in a month, then PLUG may offer a solid contrarian opportunity. But it’s not the virus as much as it is people refraining themselves from clogging up our healthcare system that’s the real concern.
If you have faith in the American public, PLUG is a cautious buy. If not, stay away. This is a long shot whose odds have likely increased dramatically.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
