Ignore the Bulls and Continue Avoiding Plug Power

Plug Power’s (PLUG) stock has staged an impressive recovery ever since the company shared a bad quarterly report. However, if you look at Plug Power’s history, you’ll know that the stock has been pumped up many times based on false hopes only to come crashing down after it. Some vague comments by the company’s management, and cherry picking statistics from earnings report usually aid Plug Power’s stock higher, however there has been no such driving force this time.

The extremely bullish stance by Wall Street analyst Matt Margolis may have pushed the stock higher, however I strongly believe the recent rally will prove to be short-lived and investors should sell the stock.

Matt Margolis’ track record

When it comes to investment advice, Mr. Margolis has a terrible track record.

According to data provided by TipRanks.com, only 3 out of Margolis’ 20 recommendations have yielded positive results. Moreover, the average return for his 20 recommendations is -38%, and he is ranked 4,516 out of 4,670 bloggers. With all due respect, Margolis has one of the worst track records among financial bloggers in the U.S. What makes things worse is the fact that the last stock he was so bullish on was GT Advanced Technologies. And as every knows GTAT filed for bankruptcy last year.

Plug Power’s margins

Plug Power has a negative gross profit margin. This means that the company spends over $1 to generate $1 of revenue. So, even if Plug Power is able to continue delivering record revenues, the company’s earnings are what matter the most. Due to a negative gross profit margin, growing revenue will result in growing losses.

So, while the stock has staged an impressive turnaround in the last few days, I expect it to tread lower in the long-term. However, given the pumping history, investors can expect the stock to move higher on some vague promises. Hence, I think Plug Power is a stock that investors should avoid.

Conclusion

I have never been a fan of Plug Power’s pumping and fake promises. With the company’s history of loss-making, I think investors should use the rally to sell the stock. Growing revenues won’t matter as Plug Power has a negative gross profit margin and earnings may take a big hit in the coming months. Moreover, despite the woes, Plug Power is trading at a hefty premium. For these reasons, I think Plug Power is a strong sell.

 

 

 

 

Published on Dec 18, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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