Plug Power (NASDAQ:PLUG) has been a big source of profits for investors this year. But looking forward, can PLUG stock continue to juice up portfolios? Let’s look at what’s happening off and on the price chart and look into a hedged stock strategy for stronger risk-adjusted returns.
The tech-heavy Nasdaq Composite has been on a tear since March’s historic bear market low. Led by outsized strength from trillion-dollar-club member Apple (NASDAQ:AAPL), the market average is up more than 31% in 2020 after rallying for a fifth straight month to gains of 9.5% in August.
It’s not alone in its muscle though.
Another workhorse behind the Nasdaq’s performance is increasingly influential EV giant Tesla (NASDAQ:TSLA). Tesla is now worth nearly half a trillion dollars and more than ten-fold the valuation of General Motors (NYSE:GM). Moreover, electrifying momentum sent shares up more than 74% this past month and a handful of points from a year-to-date return of 500%. And that’s undeniably helped with the tech index’s own burly gains.
But while Tesla sits conspicuously and influentially in pole position within the broader alternative energy arena, it’s not the only stock in this space hitting milestones in 2020. Another name performing this feat is hydrogen fueling specialist Plug Power.
Bottom line, weaning vehicles off fossil fuels is much more than just the domain of the electric battery market. Hydrogen-based transport is a fast-growing segment within this movement and enjoys critical size, waste and even travel advantages over EVs using batteries. And Plug Power is a market leader.
Plug Power estimates the worldwide market for fuel cell electric vehicles (FCEVs) could be as much as $300 billion. This year the company has been executing strongly and moving towards its intermediate-term annualized sales goal of $1 billion.
Most recently, Plug Power surprised analysts this past month by handily beating top and bottom line forecasts. Highlights for the company’s second quarter results included a narrower-than-expected loss of 3 cents compared to Street estimates of -10 cents and revenues of $68.07 million which grew 18.3% year-over-year while outpacing analyst views of $59.47 million.
This past month, Plug Power also welcomed U.K. supermarket chain Asda to its list of customers. The grocer is the U.K.’s third largest and a subsidiary of Plug Power customer Walmart (NYSE:WMT). Plug Power will less Asda 44 GenDrive fuel cells for its forklift operations within its extensive supply chain network and marks the first large-scale deployment of its kind in the U.K.
By and large, investors have been taking notice and reacting positively towards PLUG’s accomplishments in 2020.
Shares of Plug Power are up 310% year-to-date and valued firmly as a mid-capitalization company with the stock fetching just over $5 billion. H.C. Wainwright analyst Amit Dayal notes Plug Power’s forklifts are “quickly becoming the go-to solution” for big box retailers in the U.S. and Europe. And B Riley’s Christopher Souther sees PLUG as an early leader in the hydrogen fuel cell market where “strong momentum is building.”
PLUG Stock Weekly Price Chart
Source: Charts by TradingView
Not all investors are upbeat on PLUG stock. One recent detractor is notorious short seller Citron Research.
The firm’s front man, Andrew Left, tweeted Plug Power is the anti-Tesla. The outfit is far from always correct. Citron did call Shopify (NYSE:SHOP) a “get rich quick scheme.” Nevertheless, Citron’s analysis is always worth a read before passing judgment. And maybe this time Citron will get the last laugh? Still, if we’re to respect the chart here, technically shares continue to support a forecast for higher prices.
As the provided weekly chart reveals, Plug’s uptrend since the market’s Covid-19 bottom in March remains persistent. Most recently, the stock tested its relative high from 2014 immediately following Citron’s bearish comments and continues to hold support. Prior to that in early August, news of a secondary was immediately picked up as a successful pullback test of the stock’s 38% retracement level tied to the March low.
For today’s investors, I’d put Plug Power on the radar for buying on momentum rather than weakness with the current trend. As much as I’m positive on the stock’s prospects, the most recent test and formed pivot low have failed to gain traction. It’s slightly worrisome.
To get past those concerns, a rally through last week’s doji high coupled with a slightly out-of-the-money Nov $15/$19 bull call spread is one favored approach.
This strategy aligns itself nicely with a reassertion of the trend. At the same time and if Citron’s warning proves prescient for more than a day or two, a vertical like this vastly improves investors risk-to-reward profile and in stronger position to take advantage of a less-friendly, but likely opportunistic larger correction in shares.
On the date of publication Chris Tyler and / or accounts under management hold a long position in PLUG stock and its derivatives
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.