Among the most interesting companies featured on Equities.com’s Small-Cap Stars is Plug Power (PLUG) .
This is a stock that can capture the imaginations of bulls and bears alike. The alternative energy company designs and builds fuel cell systems for off-road industrial equipment like forklifts or other material handling equipment. The bulls likely see it as the rare green technology company with a clear path to profitability and deals with major companies like FedEx (FDX) and Wal-Mart (WMT) that would appear to place the company on the path to profitability.
To the bears, it’s another pipe dream that, path or not, hasn’t reached any current profitability.
And the stock’s clearly got no shortage of either side. With an average daily volume just shy of 50 million shares, about one third of the total float is on the move on any given day. And just under one fifth of that total float represents the short interests, a fairly substantial portion.
However, there are some signs that clearly point towards the potential for the bears to ultimately be proven wrong, and Wednesday’s earnings report has the chance to really get that ball rolling.
Statements at Conference Spark Jump in PLUG Shares
Shares jumped on Tuesday, a day prior to the report, after COO Keith Schmid teased results at the Wedbush 2014 Transformational Technologies Management Access Conference. There, he said that FY 2014 guidance for revenue would be $70 million, $5 million ahead of the average result from analysts surveyed by Reuters.
This sent the stock up as much as 16.7 percent in Tuesday trading. The gains pulled back significantly, but stayed over 5 percent on the day on heavy volume.
However, volatility has been the most notable trait for Plug Power in 2014, which soared to a 52-week high of $11.72 in early March on the news of its deals with FedEx and Wal-Mart before pulling back sharply. In fact, on the day it reached that high, March 11, the stock started up and then proceeded to plunge over 40 percent after short-sellers Citron Research released a damning report on Plug that called for a price target of just $0.50 a share.
Since that abrupt spike and retreat, the stock managed to scuffle along in a $6 to $8 a share range for the next month or so. That is, until they started to plunge again, losing over 40 percent of their value from mid-April to yesterday.
Reasons for Optimism for PLUG Investors
A closer look at the stock, though, could give plenty of reason for further optimism. For starters, the company’s inclusion on the Small-Cap Stars is a sign that it displays solid fundamentals in line with other successful companies in its industry and sector before their stock took off, like low levels of debt, high revenue last year, and a solid price-to-sales ratio. In this case, Plug’s lower-than-average market debt to equity ratio and the strong momentum it carried into the year stood out as strong indicators the stock was ready to run.
And Plug’s recent decline also needs to be kept in context, as run it did this year. Even after the last month’s major plunge, Plug remains up over 150 percent since the start of the year. If anything, the recent declines could be viewed as a correction for a stock that had quintupled in price in less than a full quarter.
Things get more interesting if one starts to dig into the technical data on the stock. Plug’s recent sell-off has left it firmly in oversold territory (along with most small-cap and growth stocks after a brutal couple months). The stock crossed below its bottom Bollinger Band for a few days at the end of April, and it’s been trading with a 14-day RSI under 30 since May 24 and a 14-day stochastic RSI 0.20 from May 21 until yesterday.
Earnings Report and Market Dynamics Hold the Key to PLUG's Future
All told, depending on your perspective, Plug is either getting ready to fall further or is a coiling spring ready to explode. And, if you believe the latter, Wednesday’s earnings report could be a key moment. In the end, for any company, it’s the balance sheet that really matters. Producing more increase in revenue will reverse any downtrend for Plug. But, in this case, there’s clear some pent-up demand for the stock, as the jump preceding the earnings report itself would seem to indicate.
On the whole, the recent run on growth stocks and small-cap stocks likely hurt Plug a lot, a popular growth play that still looks fairly risky. But, if Schmid’s revenue guidance ends up being accurate, it would represent a massive increase over the just-over $25 million level the company’s managed since 2011. This, combined with the oversold signals in the stock’s technical factors and the markets appearing to slowly regain their footing and reenter growth plays, could prove just the catalyst Plug needs for a major reversal.
This gets even more intriguing when one considers the short float. Certainly, many of those shorts may be in line with Citron and believing that the stock is almost worthless. However, given that the stock’s down over 60 percent from its high this year, some shorts could be looking to take profit. If Wednesday’s earnings report does end up boosting the stock, it could ultimately be the catalyst that starts a short squeeze and drives the stock even higher.
This is, of course, all a moot point if Plug ends up disappointing with its earnings report, which is entirely possible. That much should be obvious. However, Plug Power continues to offer a number of attractive qualities as a long-term investment regardless of its short-term potential. Its presence among the Small-Cap Stars is a sign of strong fundamentals for a small-cap tech play, and the promising deals with FedEx and Wal-Mart could indicate that Plug’s truly becoming a major player.
Either way, $10,000 invested in Plug at the start of the year is already worth over $25,000 even after its pull-back in April.