Fuel-cell maker Plug Power (PLUG) was up 17.72 percent to $5.05 per share from yesterday's closing price. Trading more than 57 million shares on the day, compared to an average daily trading volume of about 16.26 million shares.
Inclusion on the Russell 3000 Driving Gains?
Popular speculation about the stock’s rise is the announcement Russell index made last Friday. Russell Indexes recalculates their lists every year in early June, and this year they are going to add Plug Power into its Russell 3000 due to the huge increase of market cap from last years' $35 million to the latest $717 million. The Russell 3000 is composed of the 3000 U.S. companies with largest market value. Plug Power will also enter Russell 2000, made up of the bottom 2000 companies of the Russell 3000 companies and a benchmark index for small-cap stock investors.
Inclusion on these major indices would mean addition to a number of ETFs and index funds, not to mention many mutual funds. As such, it’s possible that institutional buyers, upon receiving official news of Plug’s addition to these indices, have been taking Wednesday to buy into the stock, sparking the current buying run. And, once it started to take off, momentum buyers and day traders would be prone to pour in given Plug’s recent history of explosive growth.
But why has the leap happened on Wednesday rather than Monday or Tuesday? Especially when one considers that the Russell Indexes use a standard methodology in creating their indexes based entirely on market cap, and that the company is more than open about the schedule. Plug’s inclusion in these indices has been a foregone conclusion for months, so the day’s move, opening even and then climbing sharply, would appear to have more at play.
High Volatility Could Also Indicate Long-term Profits
While a clear reason for the day’s leap isn’t immediately apparent, Plug Power’s a stock that’s made a turnaround since the end of last December. Plug Power's recent roller-coaster performance may make investors squeamish, but there are plenty of reasons to anticipate continued growth for the company.
Over the past year, Plug Power has grabbed significant market share and seen a huge growth, especially when compared to its relative inactivity throughout the previous decade, with the company was on the brink of bankruptcy in 2012. Now, the stock has been extremely volatile since the end of last year, sporting one-year gains of a whopping 938.74 percent.
It had a dramatic rise in December 2013, following the company's CEO Andy Marsh announcement that Plug Power would finally turn a profit for the first time in 16 years. The stock gained further traction on Jan. 8 this year with its partnership with FedEx (FDX) to provide the shipping company with clean energy fuel cells for electric delivery trucks, prompting Plug’s market value to double in less than two weeks.
Its stock then fell nearly 20 percent in the week the company posted its disappointing Q1 earnings report, pulling back the previously unchecked investor enthusiasm. From April to May, the company's stock declined to under $4.30 per share.
Some Other Good Signs that Cannot Be Neglected
Plug Power is a member of Equities.com’s Small-Cap Stars, a list of small-cap companies found to have strong fundamentals for their industry based on a complex statistical regression to isolate which factors were most predictive of success.
Plug Power features a favorable price-to-sales ratio, one factor found to be important to small-cap technology companies. While it may seem counter-intuitive, a high P/S ratio shows that investors are expecting growth in the stock, something important for growing tech companies.
Also, a significant reserve of cash for a technology company can be a bad sign because it shows a lack of reinvestment into new technology and research and development. For Plug Energy, its cash as a percentage of total assets is relatively low, which should be a strong indicator.
Plug Power and Clean Energy
Plug Power Inc. is an alternative energy technology provider, engaged in the design, development, manufacture and commercialization of fuel cell systems for the industrial off-road markets worldwide. Its lead production fuel cell system is designed to replace conventional batteries in equipment powered by electricity. It integrates fuel cells manufactured by Ballard Power and incorporates a hydrogen storage system, which is also a hot trend to replace vehicle powered by fossil fuels.
Alternative energy has been a hot industry trend for years, and the recent Iraq crisis has many alternative energy companies on the rise in anticipation of higher oil prices.
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