Will Plug Power Continue To Move Higher?

May.22.14 | About: Plug Power, (PLUG)

Summary

The short interest in Plug Power has come down by over 12% over the last few days.

Further good news can prolong the short squeeze and give momentum to the stock price.

Increased cash position will allow the company to meet its operating needs and follow the capital plans.

Plug Power (NASDAQ:PLUG) has been one of the most exciting stocks in the market. It has allowed some smart traders to make a lot of money - the stock has been moving up and down over the last few months, and the swings in price have been wild. In my previous article, I argued how the stock might be ready for a move higher, and since the article was published, Plug Power has gone up by about 16%. The basic thesis was that the stock had a massive number of shares sold short, and a piece of good news could cause a short squeeze. This is what I said in the previous article.

"Investors have sold short a large number of Plug Power shares - at the moment, 29.7 million shares of the company have been sold short, which accounts for about 30% of its total float. Only Myriad Genetics (NASDAQ:MYGN), Vivus (NASDAQ:VVUS) and Corinthian Colleges (NASDAQ:COCO) have a higher proportion of shares sold short, with 52.1%, 34.8%, and 31.7%, respectively. With such high short positions, there is always a chance of a short squeeze. Any positive news about the company over the next few days can result in a short squeeze and push the stock price up."

At the time of writing the above linked article, the short interest in Plug Power was at around 30% of the total float of the stock. Over the last few days, the short interest has come down by about 12%, as the current amount of shares sold short stands at just above 26 million. We have seen a decrease of about 3.6 million shares sold short during the last two weeks. Short sellers have been covering their positions as the stock price has started to move up.

There have been two reasons for the stock price to move up. The first reason was the order of 182 GenDrive fuel cell units for the forklifts by Central Grocers - the order was announced just a few days before the company announced its first-quarter results. The renewal by Central Grocers was hugely important for the company, as it has been one of its oldest customers - the renewal of the order shows that the grocer has confidence in its relationship with the company, and the use of GenDrive is certainly bringing some benefit to its operations. Central Grocers' decision to renew the order might also prompt other grocers to move to fuel cells for their forklifts.

The second reason for the rise in the stock price was an upgrade from Cowen and Co. The analysts at Cowen believe the year-to-date bookings of $80 million, double the full-year bookings of the last year, show that the company is making progress and the stock deserves an upgrade.

As I have mentioned in my previous articles, the technology is getting wider acceptance, and bigger players are now looking at adopting the technology. If the adoption rate gathers pace over the next few months; we are likely to see Plug Power beating its previous-year bookings by a massive margin. The first-quarter results of the company did not impress the market; however, one of the most important components of the earnings announcement was the cash on hand figures - Plug Power has over $174 million in cash, which will allow the company to meet its operational needs, as well as pursue capital plans.

The majority of the losses ($68.4 million) came from the stock warrants - stock warrants are an option to buy a stock at a specific price during a certain time period. Some companies insert warrants in the debt offering in order to attract investors. Usually, investors are interested in warrants of growing companies - this allows them to enjoy income with surety, and an opportunity to benefit from the upside in the stock price.

Bottom Line

Plug Power has had a strong run, and we believe this run will continue, at least in the short term. The increased adoption rate of the technology is encouraging for the company. Short interest is still considerably high for the stock, and further good news can prolong this short squeeze.

Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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