Investors in Plug Power (NASDAQ:PLUG) are having a great year, PLUG stock is up about 450%. Since the lows seen in early spring the shares have increased more than an eye-popping 550%.
These rapid moves have made Plug Power a momentum stock. Whenever there is headline news on alternative energy sources and hydrogen cells, daytraders flock to PLUG stock.
Shares of the hydrogen fuel cell maker are potentially expensive at these levels, but shareholders could also be betting on more good news from Plug Power, such as a strategic partnership or even a takeover. Therefore, those investors who are able to spare risk capital may consider buying the dips in PLUG stock.
Increased Attention and PLUG Stock
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.
Recent research titled “The driving power of the electron,” and published in the
Thanks to the high energy density of compressed and liquid hydrogen and good energy efficiency of today’s fuel cells, compressed hydrogen and fuel cells give unprecedented high range and very short refuelling time… When compared to Li-ion batteries, hydrogen fuel cells are better suited to power heavy-duty vehicles, including trucks and ships… Growth has been due to increasing demand from all main fuel cell applications including forklifts powered by H2 used by large e-commerce and hypermarket companies in their high-throughput distribution centers… An hydrogen-powered forklift is charged in minutes instead of hours.”
Therefore, we can expect to hear more about the technology in the coming quarters. Market participants continue to focus on the growth potential in the sector, affecting the shares of businesses in the industry.
How Plug Power Makes Money
One of those companies in this space is Plug Power. It provides hydrogen fuel cell turnkey solutions for the electric mobility and stationary power markets. Its core market is material handling industry, such as forklifts.
Latham, New York-based Plug Power was founded in 1997. Several of its customers include Amazon (NASDAQ:AMZN), Kroger (NYSE:KR), SuperValu (a wholly owned subsidiary of United Natural Foods (NYSE:UNFI), Walmart (NYSE:WMT), Wegmans and Europe-based Aryzta. These companies have seen their businesses increase during the pandemic days. As a result, PLUG stock has also benefited.
In August, the company released Q2 results, and beat expectations. However, the company has never recorded a profit throughout its life.
Furthermore, the group’s cash burn remains at record levels. Continuing losses and increases in working capital meant free cash flow for the first half of 2020 was negative by over $100 million. Yet, so far in the year, investors have simply bypassed the lack of profits.
In September, hydrogen fuel cells as an alternative energy source got more attention. General Motors (NYSE:GM) announced a partnership with Nikola (NASDAQ:NKLA), which concentrates on hydrogen fuel cell trucks.
Nikola is currently under investigation by the SEC, due to potential misleading claims made by its founder Trevor Milton. Yet GM’s involvement could put the company on the road to success.
Could there be a similar deal in store for Plug Power? As alternative energy sources get more attention, it is not a fat-fetched expectation the company may be acquired another car company or one of Plug Power’s current customers.
Should Investors Buy PLUG Stock Now?
From a fundamental view, Plug Power stock is expensive. However, the market’s risk appetite in alternative fuel sources is fueling not only PLUG stock but many others, including even pre-revenue companies. Many now wonder if a bubble is fast developing in this space.
Plug Power will report earnings in early November. If you are not yet a shareholder, you may decide to wait on the sidelines. Study the metrics before committing capital into the business would be important.
We believe PLUG stock is a high risk/high growth opportunity. It is possible that many investors will take short-term profits soon. However, it is also foreseeable that the company is a takeover candidate. Therefore, potential investors with risk capital may regard the declines in PLUG stock as opportunity to go long Plug Power shares.
They may also consider buying an exchange-traded fund (ETF) that includes PLUG stock, too. Examples include the iShares Global Clean Energy ETF (NASDAQ:ICLN), the ALPS Clean Energy ETF (BATS:ACES) or the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education 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. She also publishes educational articles on long-term investing.