Plug Power is A Short Going into Earnings

A lot of hype has been built up leading up to Plug Power’s (PLUG) Q3 earnings that are due on 9th of November. After falling to 52-week lows, the stock has made an impressive comeback as it has appreciated over 70% in the last few weeks. Investors expect Plug Power to report a terrific quarter, beating the Street’s estimates on revenue as well as earnings.

Analysts expect Plug Power’s revenue to grow 54.4% y-o-y to 30.70 million. On the earnings front, analysts expect EPS of -$0.05, worse than last year’s EPS of -$0.04.
Plug Power’s management has confirmed multiple times that the company is on track to meet the revenue estimates, however the company hasn’t said anything regarding earnings.

Given the hype surrounding Plug Power’s recent earnings, the company has no room for error. A wider-than-expected earnings miss will send the stock crashing down and there’s a high chance of that happening. Here’s why.

Historically, Plug Power has used every piece of good news to pump up its stock. The company reports preliminary results making the quarter look good, however when all the details are actually revealed, the stock crashes.  In the most recent case, Plug Power has confirmed its revenue outlook for 2015, however the company didn’t say anything about the profits. Given Plug’s history, I’m sure the company would’ve released earnings data as well if the company was any close to being profitable.

Plug Power operates at a loss. The company spends almost $1.06 to bring in $1 in revenue. Thus, it is impossible for Plug to report profit any time soon. In fact, with growing revenue, Plug’s losses are expected to grow as well. Growing revenue isn’t really a commendable feat when you’re selling your products at a loss.

So, I believe Plug Power’s expected high revenue will also lead to record losses in the quarter. Consequently, I can see the stock crashing after the report, making it a good short candidate going into earnings.

Conclusion

Plug Power is expected to generate $100 million in revenue this year, but the company is trading at almost 7x trailing sales. The company’s current P/S ratio is unsustainable and points toward the overvaluation of the stock. Moreover, with a profit margin of almost -50%, investors shouldn’t focus on Plug Power’s revenue, but its profit. I expect the Plug Power to report wider-than-expected losses on Monday, which makes the stock a good short candidate.
Published on Nov 6, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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