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Plug Power (PLUG - Snapshot Report) has seen an explosion of volume over the last month as speculation of its fuel cell technology will be used in all type of cars. Along with that volume increase there has been an increase in volatility as the stock has moved in dramatic fashion. Today, it is a Zacks Rank #1
(Strong Buy) stock and is the Bull of the Day.
Recent Fuel Cell Buzz
Not too long ago, Tesla (TSLA) announced plans to build what they call a Gigafactory. The Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013. The instant read through on this is that demand is moving higher for fuel cells.
The competition for TSLA have followed suite with Honda, Toyota and General Motors all recently talking about plans for electric vechiles.
Plug Power is an alternative energy technology provider working with fuel cell systems for the industrial off-road markets worldwide. Plug Power Inc. was founded in 1997 and is headquartered in Latham, New York.
Cowen Downgrades Despite Strong Quarter
On March 14, Cown downgraded the stock from Outperform to Market Perform and noted that the valuation was "full". Investors paid close attention to this report as the stock moved from $8 prior to the downgraded to a low of $5.45 one week later. Yet 3 trading days after that low, the stock spiked back over $8 on speculation of a deal with Volkswagon.
Since that most recent spike, the stock has maintained in the $7 range.
Poor Earnings History
Over the last four quarters, PLUG has beaten the Zacks Consensus Estimate only 2 times. In fact, the company has only 2 beats over the last nine quarters.
Investors certainly don't like looking at the historical revenue trend. The last three quarters reported revenues have been $8M, $5M and $7M. Those small numbers tend to scare investors right out of digging any depper on a stock like this, but that would be foolish. Bookings are great measure of expected future revenues and PLUG has been seeing bookings grow.
The recent Cowen downgrade note that they expect the company to have bookings of $150M compared to $70M at the end of 2014.
PLUG Sees Estimates Moving Higher
Estimates for PLUG have risen recently. The Zacks
Consensus Estimate for 2014 stood at a loss of $0.19 in July last year. It then moved to a loss of $0.17 by October and was trimmed again to a small loss of $0.11 in January. The current Zacks Consensus Estimate is calling for a loss of $0.09 for this year and is expecting a profit of $0.05 next year.
Estimates moving higher are a primary contributor to the Zacks Rank. Increases to estimates, along with agreement among analysts in doing so, tends to push a stocks rank much higher.
With the company not having positive historical earnings, we don't have our normal valuation metrics that we often use. Let's take a look instead at revenue and earnings growth that is expected for the company for 2014 and 2015. Revenue is expected to grow 144% in 2014 and 79% in 2015 and those growth rates compare favorably to the industry averages of 3% and 6% respectively. Earnings are expected to grow 75% in 2014 abnd 153% in 2015, and those growth rates also look much better than the 20% expected earnings growth rate in 2014 for the same industry and 13% in 2015.
What seems to get lost in most discussions of PLUG and other fuel cell companies is that it is not all pie in the sky. PLUG has customers like Sysco, Kroger, Walmart, BMW and Mercedes right now.
The price and consensus chart that is produced by Zacks shows how the stock has moved when compared to earnings estimate changes. Normally this graph will show estimates spike higher as a stock moves higher, but that is not the case with PLUG. Instead, we see the stock gliding down from $2 level to nearly $1 until mid 2013. Then a big increase in share price without a coresponding increase in estiamtes. Only lately have we seen an uptick in estiamtes, but the idea of increasing backlog has given investors the faith that earnings will be also moving higher.
Brian Bolan is a Stock Strategist
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Full Disclosure: I own shares of PLUG