Plug Power (NASDAQ:PLUG) shares have been erupting to the upside. In fact, PLUG stock just cleared a 10-year high, putting it at levels investors haven’t seen in more than a decade.
Hopefully, there are not many (or any) long-time holders that were waiting to get back to even in Plug Power, all while the overall market came roaring back to life in the past decade. Either way though, it’s not about what PLUG stock has done, it’s what it can do from here.
In that regard, investors have a lot of questions. For instance, is this momentum sustainable? Do the fundamentals justify this type of move? Let’s take a deeper look at Plug Power and see if this name checks out.
If so, there could be more upside.
Valuing Plug Power Stock
On Aug. 6, Plug Power beat on earnings and revenue expectations. While the company still lost 3 cents per share, that was 7 cents a share ahead of estimates. Revenue grew 18.3% year-over-year to $68.07 million, topping expectations by more than $11 million.
For the year, analysts now expect 35.5% revenue growth to $320 million, followed by another 33% jump in 2021 to $427 million. That said, the losses are expected to linger. After losing 36 cents per share in 2019, analysts expect 2020 and 2021 losses of 29 cents and 25 cents per share, respectively.
In the quarter, Plug also hit a record gross billings mark, showing solid momentum. Since the report, shares are up 35%. That’s nothing though compared to the run from the March lows, with Plug stock up about 400%.
That run, at least in part, inspired management to announce a $300 million secondary offering at $10.25 per share, with an option for underwriters to buy an additional $45 million.
On the balance sheet, liabilities have been on the rise in recent quarters. However, assets still leave Plug Power with breathing room. Current assets of $394.6 million are almost double current liabilities of $208.3 million. On the plus side, current assets are up 158% year-over-year versus current liabilities growth of 102%.
The company also carries a manageable long-term debt load of $545 million. The balance sheet doesn’t seem to be the problem. Instead, it’s the valuation. Currently, PLUG stock trades at about 10x forward revenue and still isn’t operating or free cash flow positive.
Some analysts have also been critical of the valuation lately. But with momentum in the business comes momentum in the stock price. Until that stops, the rally in Plug stock may not either.
Trading PLUG Stock
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Plug shares plunged in March, then stabilized in April and May. In June, Plug stock caught fire, rallying up to $6 resistance before cooling off a bit. Then, shares ignited higher again, breaking out over $6 — the high from February — and quickly hitting $10 a few weeks later.
Ten dollars per share has been a relevant level since shares broke out about 10 years ago. In any regard, this mark only momentarily deterred the stock. In fact, Plug put together a gorgeous bull flag (purple lines on the chart), as the massive rally consolidated down into the 10-week and 50-day moving averages.
Now breaking out again, $10 will be a critical level to watch for PLUG stock. As mentioned previously, this level has been notable for years, while it also acted as support earlier this month.
If shares ultimately lose this level as support, it could put the July low in play at $7.71. If the stock tests this level, it means Plug has lost its 20- and 50-day moving averages, as well as its $10.25 secondary offering price. It will also put the $6 level on watch.
On the upside, see if Plug stock can get to $13.09, the 3x range extension. Above puts the 361.8% extension in play at $15.27.
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.
