Fingers were pointed toward energy prices as an undesirable drag on Plug Power (NASDAQ:PLUG) shares Monday. But looking forward can PLUG stock juice up tomorrow’s portfolios?
Let’s look at what’s happening off and on the price chart, then offer investors an aligned, stronger risk-adjusted determination on how to proceed.
Ugly Start for the Week
It was an ugly start to the workweek for many investors. Mounting concern over a ballooning second wave of novel coronavirus cases, pre-election jitters and stalled congressional stimulus package weighed heavily. In the S&P 500 the damage amounted to a 1.85% decline.
Sentiment also turned genuinely fearful. The VIX jumped nearly 18% to a historically elevated 32.5% and highest reading since early September. Not surprising, for many individual stocks’ conditions proved systemically more challenging Monday.
Disney (NYSE:DIS). Nvidia (NASDAQ:NVDA). Boeing (NYSE:BA). Caterpillar (NYSE:CAT). All were hit with much steeper losses on either side of 3.5%. In that respect mid-cap, hydrogen-play Plug Power’s decline of 3.83% was in rather good company and not exactly unusual. Moreover, it could have been worse too.
Impact of Oil Prices
It’s not exactly a secret the oil market has been under relative pressure throughout 2020. Weakened demand tied to the pandemic, producer price wars and improving alternative technologies have conspired against oil.
And with the commodity sliding more than 2.5% on the session toward its September lows, all things considered, it could have been uglier for Plug Power. But again, it wasn’t.
Bottom-line, the long-time argument of prices at the pump dictating the success of renewables is having less effect these days. That’s certainly obvious in PLUG.
Oil’s plunge this year to multi-decade lows and inability to rally meaningfully the past few months alongside improving global economies hasn’t stopped Plug Power’s shares from gaining more than 350% this year and reaching its highest levels in more than a decade.
Recipe for Success
Part of PLUG’s success in 2020 has undoubtedly been the company’s bread-and-butter hydrogen-based materials handling transport business. Plug’s forklifts have proven essential to e-commerce outfits like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT). It’s a fast-growing market made more important during the Covid-19 pandemic and one that’s helped unleash solid revenue gains for Plug Power this year.
But Plug Power has also diversified its reach in 2020 to set the stage for even greater success ahead.
Key acquisitions of United Hydrogen and Giner ELX this summer are helping ensure PLUG stays on track with its ambitious five-year sales and profit plan. In fact, Plug Power raised its hotly-contested 2024 sales forecast by 20% to $1.2 billion and operating income by 23% to $210 million following the buyouts.
Importantly, the purchases now mean Plug is also major hydrogen supplier. And the timing looks good to say the least. Despite today’s challenging federal politics, regulatory moves by California at the state level and Europe pushing for aggressive zero-emission quotas is making hydrogen-fueled commercial transport key in achieving those goals over the next 10 to 15 years. And surely others will follow suite, right?
PLUG Stock Weekly Price Chart
Source: Charts by TradingView
Plug Power really could be at the center of a large market whose growth is just getting underway. But there are no guarantees. While this year’s improving trends look good, the infrastructure for a hydrogen economy is far from complete.
PLUG stock’s operating cash flow also remains at record levels of red ink. And as InvestorPlace’s Chris Markoch explains, if natural gas used to produce hydrogen goes up in price, PLUG could always go up in flames.
Technically, without getting to overwhelmed with bearish “what-if’s” and instead remaining focused on this year’s many positives for Plug Power investors, the price chart is another bullish feature in today’s market.
Along with Monday’s decline, the past two to three weeks developed into a corrective move of around 26% in depth for PLUG. That’s inside the 30% drawdowns many investors appreciate as par for the course in a volatile growth stock of Plug Power’s caliber.
The Bottom Line
Right now Plug Power’s bearish cycle has positioned shares near uptrend and Fibonacci support. At the same time, the stock’s weekly stochastics has just entered oversold territory. The combination could prove very bullish in the coming days. But both observable events need to firm up without exposing a purchase decision to potentially much larger downside exposure.
For the moment I’d suggest simply watching Plug Power for trend improvement before buying shares. Still, with earnings next week and potentially a significant catalyst for PLUG stock, a hedged November collar has my vote as the right type of vehicle for a risk-adjusted stock profile that won’t haunt investors.
On the date of publication Chris Tyler and/or accounts under management hold a long position in Plug Power (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.