Thursday, August 7, 2014

* Plug Power (PLUG) - Earnings Preview; Financials Review. Risk Reality. Six Factual Charts.

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The original post date of this article was 8-7-2014.

Updated images have a blue border - particularly the option pricing at the end.

PLUG is trading $5.50, up 3.3% with IV30™ up 0.8%. The Symbol Summary is included below.

Provided by Livevol

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Update 8-13-2014

Provided by Livevol

PLUG has moved up in the last few days to $5.78.
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This is an earnings preview, stock price and volatility note, and a deep dive into the financials on PLUG. I first wrote about PLUG on May 12th, 2014. That post is below:

Plug Power (PLUG) - Earnings Preview & All the Facts. Is the Option Market Under-pricing Risk?

In that article you will find a lot about risk pricing (the stock was trading $3.84) and how 'wrong' it was. You will also find a fair amount of financial statement data, which I think is important.



Conclusion
The risk into this earnings release for PLUG is lower than the last two (the only two that really 'matter').  But, the last two earnings releases haven't seen huge moves in the stock price, so that easing of the volatility may be correct. But, we also must look to the financial statements.

Don't get me wrong, PLUG moves HUGE, but it's usually on other 'stuff,' like the CEO making an announcement that sometimes is amazingly good and sometimes is... amazingly useless. Here's the biggest example of the latter, below, when the stock rose 50% for 'no reason.'

(PLUG) - Stock Explodes then Implodes on "Misunderstanding"; Bloody Murder!.. Or Just One of Those Things?

Let's start with the one-year stock chart.

Provided by Charles Schwab optionsXpress

We can see four distinct cycles for PLUG.

Cycle #'0': Nothing; no one cared.
Cycle #1: The stock rose 6,800% on a reality that, 'holy sh*t, I should care!'
Cycle #2: The stock dropped 65% from ridiculous highs.
Cycle #3: Quietly... the stock is up 50% in three months.

So we know that the stock price can move, and we also know that 'equilibrium' may not (yet) be a term we can use right now.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days).

In English, the red curve is the risk in future stock price movement. Five phenomena to note:

1. The volatility dipped huge from Dec to Feb (which was a mistake).
2. It exploded again into earnings in March.
3. It then dipped down and has stayed relatively calm for PLUG.
4. The last two earnings cycles (the blue "E" icons) have seen dipping risk and that dip in risk seems to be continuing.
5. Let's not miss the forest for the trees: PLUG is priced to over 100% implied volatility: That's very high in general.

Before we get into the option pricing, which is basically the point of this article, let's look back at the financials. Let's start with the quarterly filings (prior four quarters):

NASDAQ.com

First, look at the top line (the revenue).

  • Last Quarter Revenue: $5.6 million.  
  • Two Quarters Ago Revenue: $8.0 million.  
  • Four quarters Ago Revenue: $7.5 million.  

And now the bottom line (net income from continuing operations)

  • Last Quarter Revenue: -$76 million.  
  • Two Quarters Ago Revenue: -$29 million.  
  • Four quarters Ago Revenue: -$9 million.  

I'm not trying to start a fight here, there is no opinion, these are the financial statements filed by the firm to the SEC and made public to the world. For the record, I don't have an opinion.

Revenues are lower and losses are higher. Higher losses are due to investment in the firm, R&D etc.  That's not necessarily negative and is certainly pretty normal for a small high growth firm.  The revenue... not so good.

Now let's try an annual view, over several years, to be a bit less myopic.

NASDAQ.com

  • We can see that revenue is essentially unchanged in the last three years.
  • We can see net income from continuing operations is lower.

Same comment about revenue and earnings.

Now, of course, this is not the whole story.

A stock price = Present Value (All future free cash flows).

It's the huge promise of "future free cash flows" that has PLUG stock up so much, not the recent quarters of realized results.  Keep that in mind... FUTURE.  But, let's also not forget that recent past.

More 'stuff' to know

R&D

PLUG's Research & Development (R&D) Expense over Operating Expenses has been decreasing abruptly.

Current Ratio

The current ratio had declined significantly and now is flat lined (steady state).

The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows:


Source: Wikipedia


Property Plant & Equipment

PP&E to Total Assets in increasing rather abruptly which points to investment in the firm.

These are items of value that the organization has bought and will use for an extended period of time.
Source: Wikipedia

Asset Turnover

Asset Turnover has been rising.

Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Companies in the retail industry tend to have a very high turnover ratio due mainly to cutthroat and competitive pricing.


Source: Wikipedia

Finally, the Options Tab is included below.

Provided by Livevol

Using the at-the-money (ATM) straddle in the Aug monthly options (expiring Aug 15th) we can see that the option market reflects a price range of [$4.75, $6.25].

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

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Update 8-13-2014

Provided by Livevol

Using the at-the-money (ATM) straddle in the Aug monthly options (expiring Aug 15th) we can see that the option market reflects a price range of [$5.45, $6.65].

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.
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News from 7-29-2014
Plug Power Charged By Bigger Wal-Mart Fuel Cell Pact

I have no position in PLUG, but I may take one into earnings.

This is trade analysis, not a recommendation.






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