Plug Power (NASDAQ:PLUG) is up 10% in pre-market on news that the company received an order from Wal-Mart (NYSE:WMT) to add an additional GenKey site to the original six-site contract that was announced in February 2014. Absent of any news, I was expecting that the Q2 report will be the major catalyst for a higher share price although the company hinted that it may announce an important deal by the end of Q3 (and this might not be the deal they were talking about).
The additional 286 GenDrive fuel cell units that are going to be deployed in Q3 2014 are not as important as the fact that it is an additional order from a major customer. It is the added confidence in the business model that is of great value for Plug Power and its shareholders. This addition to the original contract provides ample evidence of the sustainability of the company's business model and expectations for further growth in the future.
This deal is now another part of my short-squeeze thesis that I presented in mid-June. In the meantime, short interest has increased to new highs and now stands at 36.67 million shares and represents 24.3% of free float. Average volume has contracted once again and this is a recipe for a higher share price in the next couple of weeks. I believe that the positive momentum could drive the share price above my $6.6 price target. And since my price target is based on a 2017 P/E ratio of 30, and the fact that 2017 EPS estimates consensus has moved to $0.24, my new price target is $7.2. The new price target translates into 20% more upside from the current price in pre-market.
Disclosure: The author is long PLUG. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.