Perhaps not surprisingly for investors and observers of alternative energy companies, Plug Power (NASDAQ:PLUG) has become a hotly debated stocks at InvestorPlace. As Chris Tyler explained, the fundamentals for PLUG stock are encouraging, with the underlying company cutting lucrative deals. As well, traders can profit on the momentum as long as certain technical parameters are met.
Most importantly, Plug Power killed it on its most recent earnings report. Prior to the second-quarter disclosure, analysts were expecting it to lose 10 cents per share on $57 million in revenue. Instead, it delivered a per-share loss of 3 cents on sales of $68 million.
As well, PLUG stock features positive comparisons. For instance, Nikola (NASDAQ:NKLA) is involved in both the fuel cell and electric vehicle space, yet it doesn’t have sales. That is a far cry from Plug Power, which has deals with industry-leading stalwarts like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT) and Fiat Chrysler (NYSE:FCAU).
However, not everyone is convinced. One of the skeptics is InvestorPlace contributor Thomas Niel, who warned about the “frothy valuation” and “red flags” impacting PLUG stock. In his view, the EV bubble has driven sentiment toward this electrified industry that is no longer justified. “After March’s pandemic sell-off, electric vehicle, and other ‘green’-related stocks have become hotter than they’ve ever been with investors,” Niel wrote.
As far as red flags go, my colleague warned about “a history of shareholder dilution, as well as precarious use of vendor financing.” Further, he worried that these “chickens may start coming home to roost” if it “becomes clear profitability is not on the horizon.” And his concerns are echoed by other analysts.
PLUG Stock Is a ‘Perfect’ Play on Tesla
Interestingly, Niel wrote that PLUG stock has been tracking the likes of Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) during this EV-inspired craziness. Eventually, though, my colleague wrote that the specific headwinds impacting Plug Power will basically decouple PLUG from solid EV plays.
I can’t speak for Nio as I didn’t run a comparative analysis between it and PLUG stock. Further, I don’t know if PLUG will ever dissociate from its more fundamentally sound brethren. What I can say is that Niel is presently correct about the pairing of PLUG and TSLA: The two are a match made in heaven.
From the beginning of this year, Plug and Tesla shares have recorded a 97% correlation coefficient. Mathematically, the two securities in terms of their trajectory — I’m not talking about nominal price levels of course — are virtually identical.
Let’s say you want to buy TSLA. Even after its stock split, shares per unit are still very pricey. Psychologically, you may want more shares at a lower price rather than fewer shares at a higher price. Well, you’re in luck. You can just buy PLUG stock, so long as you truly believe in the Tesla narrative.
Further, I’d like to point out that this isn’t just a new phenomenon that’s affecting all EV stocks. Quite the contrary, Nikola and Tesla shares have an inverse relationship, at least at the time of this analysis.
For any math wizards out there, the dynamic surrounding EV investments deserves a closer look. I can’t just say that PLUG advocates are mindlessly buying its equity. Why? NKLA and TSLA are acting as each other’s hedges.
That’s not an invitation to buy PLUG stock, but rather adding color to this intriguing debate.
Will There Ever Be a Disconnect?
As I mentioned with the NKLA-TSLA pairing, the relationship between PLUG and TSLA should be taken with a grain of salt. To quote myself, “no guarantee exists that this dynamic will play out indefinitely.” So, don’t place too heavy a wager on Plug just because you believe in Tesla’s Elon Musk.
Another question that I had was if one would be a leading indicator for the other. If PLUG’s technicals get a little uncomfortable — something that Tyler mentioned in his analysis — would that be an early warning indicator to get out of Tesla?
Given all that has happened this year, I’m not entirely comfortable chasing PLUG at these levels. Should shares correct, I’d be much more confident.
Nevertheless, if you have a high conviction toward Tesla, PLUG stock might not be a bad bet. Clearly, other investors are thinking the same way you do.
On the date of publication, Josh Enomoto held a long position in NKLA.
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.