In 2020, bears on Plug Power (NASDAQ:PLUG) stock (such as me) had the story all wrong. Too focused on its shaky business model and rich valuation, we missed out on tremendous gains. But as hype fades, investors are now looking beyond the hype, and taking a closer look at this company’s details.
The election of Joe Biden as president will likely speed up the move towards clean energy. But it’s clear the benefit to Plug won’t be as massive as once thought.
That’s not the reason, however, that the off-the-charts enthusiasm for this stock has taken a significant breather.
Red flags, such as the company’s financial restatement announced in March, haven’t completely killed the bullishness surrounding this stock. At first, Wall Street shook it off as “no big deal.” But shares since then have continued to slide lower.
Even some analysts, while still overall bullish, concede that the long-term growth in hydrogen power is largely reflected in today’s valuation. In other words, there is limited potential for gains. And without the past enthusiasm for it in the picture, it’ll be tough for shares to sustain their current valuation.
In short, expect a fall to lower prices, although likely at a slower pace. With its decline far from over, continue to stay away.
Ups and Downs in PLUG Stock
Many factors fueled the stunning rise of Plug Power shares from last spring through early 2020. But one key trend was investors “buying the rumor, buying more on the news.” Investors bid it up in anticipation of Democrats taking the White House and the Senate. A switch in party control would mean major changes to America’s clean energy policy. And in turn, a possible boon for this hydrogen fuel cell company.
When said political changes happened on Election Day, investors again sent PLUG stock to the moon. Things peaked with the January presidential inauguration, when shares hit a multi-decade high of $75.49 per share.
After that? The investors who rode the momentum and the hype to higher prices, decided it was high time to cash out. Even as the new administration came out with an infrastructure plan with big carve-outs for clean energy, investors didn’t bat an eye.
Instead, they kept taking profits. With the anticipated “boom times” for hydrogen power already priced in, the excitement is gone. Chances are, it’s not coming back. Early movers cashed out. And those who came in later, mainly out of FOMO, are heading for the exits as well.
Without this dynamic at play, shares going forward will likely react more strongly to negative news. This points to lower prices ahead.
More Downside Looms on the Horizon
Again, the financial restatement news has only moderately affected the price of PLUG stock. But while investors so far have downplayed its significance, it’s still something that could weigh down on shares as time progresses.
As our own Matt McCall recently discussed, the restatement is by no means a sign Plug Power’s prior numbers were fraudulent. But it will show that Plug Power is a much less profitable company than previously believed. With a truer picture of its financial health, we may see another reassessment of this company’s valuation.
As McCall also noted, the company is a lot more cash-rich than it was a year ago. Part of this is due to the company’s big secondary offerings and a $1.6 billion capital investment from South Korea’s SK Group. Considering this now highly liquid balance sheet, I don’t expect shares to fully give up their gains over the past 12 months.
Even so, another high double-digit percentage move lower remains more than possible. It may not happen immediately. Yet, as investors continue to realize it’s not set in stone the coming years will see this company scale into a multi billion-dollar hydrogen dynamo, there’s much more room for its current market valuation ($17.1 billion) to further contract.
Bottom Line: Stay Away from Plug Power
As recently as January, it was foolish to go against the crowd with this stock. With trends on its side and hype surrounding this sector at its peak, prices were set to remain high longer than short sellers could remain solvent.
Now, however, PLUG stock no longer has a runaway bull market for clean energy stocks. Not even progress in Biden’s green energy plans is doing much to change this one’s now downward-trajectory.
With investors looking at it with a more critical eye, expect further declines for PLUG stock. Still far from bottoming out, it’s best to continue avoiding it.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.