Update: Plug Power Earnings - Thesis Rejected

| About: Plug Power, (PLUG)

Summary

Plug Power recently issued stock options to management, something I didn't think would happen so soon.

Part of my short thesis has been proved wrong.

The market has liked Plug Power's earnings today, though I still remain unimpressed.

In my previous article on Plug Power (NASDAQ:PLUG) I wrote that Plug Power's stock should be shorted down to $1.50. I published that article when Plug was at $5.05 (and submitted it when Plug was only $4.20), as of writing the stock is over $6. I based my short thesis on two points.

First, that Plug was highly overvalued based on various metrics. This obviously wasn't an original observation. Second, I thought that Plug's executives would be incentivised to want the stock to go lower until they received their next slug of stock options, which based on my reading of one of their SEC filings, led me to think it would be sometime in 2015. To put it simply I was wrong. Plug issued 1 million stock options to four of its top executives on the 29th of July, shortly after its AGM. These options vest in three tranches over the next three years and have a strike price of $5.39. While that second part of my thesis has proved to be incorrect, the first part remains true. Indeed with a stock price of over $6, Plug is even more overvalued than it was a month ago.

Earnings highlights

Plug Power reported earnings today and the market reacted positively, sending the stock up over 10% pre-market. Though Plug met EPS estimates and slightly beat revenue estimates, what the market liked best was the gross margin improvement. Product gross margins hit 17%, driven by a new design, higher volume leading to better supplier terms and higher production volume resulting in better factory utilization. Overall gross margins, which include service revenue were only 4% and because of higher SG&A expenses, Plug recorded a quarterly operating loss of $6.4 million, exactly the same as the quarter a year ago. Plug intends to increase spending on sales even further over the next couple of quarters, leading me to doubt whether they can meet their EBITDA breakeven target for Q4. With that in mind I have increased my short position.

Disclosure: The author is short 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.