When discussing the strength of so-called "momentum stocks," investors like to conveniently forget that "momentum" is a two-way street. No company exemplifies this better today than Plug Power (NASDAQ:PLUG). While a dilemma remains as to whether the stock should be invested in or traded, one thing is clear; this fuel cell company remains one of the most polarizing names on the market.
Last week, the stock gained almost 6% following the company's announcement of a fuel cell supply contract with retailer Central Grocers. According to the press release, Plug received an order of 182 GenDrive fuel cell units from Central Grocers, which plans to use the GenDrives to operate its electric lift truck fleet at its Illinois facility. Aside from the GenDrive orders, Central Grocers also signed a five-year GenCare service contract with Plug Power for the fleet.
So there is still progress being made as more companies adopt Plug's products and services. The concern remains about the stock and the extent to which these shares support (or have ever supported) current and future growth prospects. These are the questions management must answer when Plug announces its first-quarter earnings Wednesday. Perhaps more importantly, management has to convince a jittery market that the company's weaknesses, particularly its deteriorating net income and operating cash flow, can be fixed.
On Wednesday, the Street will be looking for a loss of 5 cents per share on revenue of $5.35 million. Although revenue is projected to decline 17% year over year, analysts are projecting a narrower loss, topping last year's mark of negative 14 cent per share. Things look even better on a full-year basis, however. The Street is expecting revenue of $65 million, which represents year-over-year growth of 144%. For full-year earnings, it's expected to advance almost 280% from negative 34 cents per share to negative 9 cents.
Of course, no one expects these sort of numbers on a long-term basis. But that has not stopped investors from piling in on the stock, which had (at one point) soared more than 4500% over the past year. That's not a typo. Since shares traded at 25 cents last May, Plug has reached a 52-week high of $11.72 in March. But since that March high, Plug has lost almost 70% of its value.
Unable to explain the company's surge, analysts began to focus on the company's fundamentals, which revealed glaring weaknesses, including a 241% year-over-year decline in net income, which fell from -$8.47 million to -$28.88 million. Bulls insisted it was a "bear raid." But it's tough to justify such optimism when the company's net operating cash flow has significantly decreased by 93% in one year, falling to -$8.94 million.
No one is suggesting that the company can't be a viable player in the fuel cell industry. But to the extent that its performance supported a 4500% surge in the stock, I don't think any rational person can agree that it does. And by "rational" I mean someone who doesn't currently own the stock. And even if we were to assess the company on its impressive revenue growth, including its recent deal with Central Grocers, management has not shown that it can make money on those sales, as evident by the persistent decline in earnings per share, including 27% decline in the recent quarter.
There are many who insist that growth opportunity in the fuel cells market can be substantial. That may very well be the case. But I have not seen any evidence to suggest that Plug will be the leader of that market or that investors can make any money from this business. With shares still up well over 1500% over the past year, I wouldn't press my luck here. This stock is nothing more than a lottery ticket. The easy money has already been made and this ticket can't be used twice.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Wall Street Playbook's tech sector analyst. Wall Street Playbook is not receiving compensation for it (other than from Seeking Alpha). Wall Street Playbook has no business relationship with any company whose stock is mentioned in this article.