Sell the Plug Power Rally

I have been a Plug Power (PLUG) bear for quite some time; however I recently recommended investors to buy the stock. Although I still don’t completely believe in Plug Power’s long-term prospects, the stock usually moves higher a few days before the earnings report. Usually, its bullish commentary from Plug Power’s management in the preliminary report that drives the stock up before the earnings, only to come crashing down when the actual numbers are released.

However, this time the state of affairs was different as Plug Power actually managed to deliver on estimates.
Plug Power reported its Q4 earnings today and managed to meet the analysts’ estimates on earnings. Plug Power reported earnings of -$0.05 per share, in line with the analysts’ estimates, whereas the company’s revenue jumped 79% year over year to $38.4 million, beating the analysts’ estimates by $2.22 million.

Since Plug Power rarely manages to deliver on earnings, shares jumped over 10% today. However, I think investors should use this rally to sell the stock as the company is still in troubled waters and is still losing money.

Losing money

For the quarter, Plug Power lost $10 million, which is a lot better than the net loss of $13.3 million it recorded in the corresponding quarter of the previous year. Although Plug Power’s losses are shrinking, I don’t think the company is close to a breakeven, let alone turn profitable, any time soon.

The company has further shot itself in the foot by securing a $30 million loan from Generate lending. As per the terms of the deal, the loan has an interest rate of 12%. Out of the $30 million, $12.5 million will be made available to Plug Power immediately whereas the remaining will be sanctioned if several conditions are met. In addition, increase rate will increase to 14% in case of a default.

Given the low interest environment, the interest rate is very high and will eat into Plug Power’s cash flow going forward. Plug Power has been struggling on the profits front for years, and this loan will further pressure the company’s margins.


Given the Plug Power is still a long way from breaking even, I think investors should use the recent rally to sell the stock and book profits. Although Plug Power is expected to grow its revenue at a rapid speed, investors should avoid the stock as the company is expected to continue losing money.

Published on Mar 10, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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