As a momentum stock, PLUG stock is typically extremely volatile around earnings dates. On this occasion, Plug Power shares shot up. It’s also important to note that it is among the top 100 most popular stocks on online brokerage firm Robinhood. Therefore, the stock exhibits wide daily swings.
Material handling industry — like forklifts — is the company’s core market, where it is the leader across North America. Plug Power’s fuel cells are an alternative to lead-acid batteries, and the company specializes in technology that uses hydrogen as fuel for vehicles both small (warehouse forklifts) and large (delivery vans and airport safety equipment).
Now investors are now wondering whether they should still buy into the shares of the hydrogen fuel cell maker at these levels. If you are already an investor who has paper profits, you may consider ringing the cash register at these levels.
If you are a long-term investor studying PLUG stock, you may consider building a position if the price dips below $10, especially toward $7.50. Here’s why.
Hydrogen Fuel Cell Technology Has Growing Pains
Let’s first take a closer look at the industry in which Plug Power operates so that especially new investors may better appreciate the market.
A fuel cell generates electricity by a chemical reaction. And according to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE), “a fuel cell uses the chemical energy of hydrogen or another fuel to cleanly and efficiently produce electricity. If hydrogen is the fuel, electricity, water, and heat are the only products.”
That said, many believe that fuel cells may offer the prospect of supplying the world with clean, sustainable electrical power.
However, long-term investors in Plug Power would also know how volatile hydrogen fuel cell technology has been in the past decade. In other words, the industry is still experiencing growing pains.
Overall, the share price of the company as well as others in the sector tend to reflect this reality. After a dismal 2018 and 2019, PLUG stock had an impressive rally until early 2020. In mid-August 2019, it hit a low of $1.88. Then in late February, it was around $8.
As the markets plunged in March, it was down to $2.50. And the rising tide in broader markets as well as the hype and craze that have been fueling electric vehicle (EV) stocks have helped push to PLUG stock to new highs.
Investors may also be betting on the hydrogen fuel cell industry gaining more recognition. Companies that use Plug Power’s fuel cells include Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), Kroger (NYSE:KR), SuperValu (a wholly owned subsidiary of United Natural Foods (NYSE:UNFI), Wegmans, and Switzerland-headquartered Aryzta. Could the company find itself a candidate to be acquired by one of its top customers?
How Q2 Results Came
On Aug. 6, Plug Power reported a better-than-expected revenue of $68.07 million, surpassing the year-ago revenue of $57.07 million. It was the highest-ever second quarter gross billings. However, quarterly loss came at 3 cents per share, compared to a loss of 8 cents a year ago.
The company highlighted that it has been benefiting from consumer shopping trends since the start of the pandemic. It said, “as of year-end 2019, Plug Power’s products were moving 25% of the retail food and groceries through the United States. In the first quarter of 2020, Plug Power reported that number had risen to approximately 30% as demand peaked.”
It also sees increased demand in Europe as “Germany, the Netherlands, France and Portugal, will provide meaningful growth opportunity for Plug Power.” Investors cheered this positive outlook in business and pushed PLUG stock up after the release of the results.
Management’s guidance for the third quarter showed gross billings in the range of $110 to $115 million. The company also reaffirmed its guidance for 2020. Furthermore, Plug Power reaffirmed its long-range aim of $1.2 billion in annual revenue, and $200 million in operating profit, by 2024.
From a fundamental analysis perspective, the company’s earnings have improved from previous quarters. However, PLUG stock is not cheap at current levels. Therefore, I’d encourage potential investors to do further due diligence. Could your portfolio handle a company that is not likely to report any kind of substantial or consistent profits any time soon. The company’s target year, 2024, for operating profits is still a long way off.
The Bottom Line on PLUG Stock
The world is looking for cleaner alternatives to traditional energy sources. Meanwhile, Plug Power is fast establishing itself as a leader in the hydrogen fuel cell industry. However, the company is not expected to be profitable any time soon.
Short-term charts signal caution, indicating that PLUG stock is overbought. If the markets become volatile with a downward bias in the coming days, there will likely be short-term profit-taking in PLUG shares.
If you’re bullish on hydrogen as well as alternative energy and would like to have exposure to Plug Power in your holdings, then you may consider building a position around $7. There are currently nine analysts whose 12-month price forecasts for PLUG stock have a median target of $13.
Alternatively, market participants may consider buying into an exchange-traded fund that includes PLUG stock, too. Examples include the iShares Global Clean Energy ETF (NASDAQ:ICLN), the ALPS Clean Energy ETF (CBOE:ACES), the SPDR S&P Kensho Clean Power ETF (NYSEARCA:CNRG), or the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL).
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.