Tuesday, March 4, 2014

Plug Power (PLUG) - Why a Company with $25M in Revenue is up 5,000%

PLUG is trading $6.70, up 15.1% with IV30™ up 10.6%. The Symbol Summary is included below.

Provided by Livevol

Plug Power Inc. (Plug Power), is a provider of alternative energy technology focused on the design, development, commercialization and manufacture of fuel cell systems for the industrial off-road (forklift or material handling) market.

This is a note on what has become one of the most talked about stocks (note I said stock, not company) in the twitter/blogger/stocktwits world. And.. for good reason.

Ridiculous Stat of the Day
Nine months ago PLUG closed at $0.14.  Yeah, fourteen cents.  As of this writing, that makes the 9-month return 4,686%.  Uh... yeah...

More recently, PLUG is up ~320% since Dec 31, 2013.

before we go any further, the Charts Tab (two-years) is included below.

Provided by Livevol

Aside from the 9-month return, and the YTD return, we can see even more myopically that PLUG is up from $2.84 a month ago (136% one month return).

So what's happening?  I found a compelling article from Seeking Alpha, a fellow by the name of Matthew Charles Fox.  Here are a few snippets from his recent article, and ultimately the link to the full article (which is a good read, but quite bullish). Keep in mind, he visited PLUG and in fact has snapshots of the factory in his full report.

Shares of Plug Power (PLUG) have been in beast mode ever since CEO Andy Marsh held a business update on December 4th and announced a blowout fourth quarter []. Shares have generated a staggering three-month return of nearly 500% [].

The rapid appreciation of Plug Power's value is warranted, and though many critics voiced their cautious opinion, almost all have been subdued. The premier fuel cell integrating company that was infamous for destroying shareholder value for more than a decade is not as small as many think, and after a tour of Plug Power's manufacturing facilities in Latham, NY, on February 28th, 2014, I walked away with [] a sense of excitement for what lies ahead in the not so distant future. []

[] Plug Power has integrated fuel cells into products for the home generation industry, the automobile industry, the telecom industry, and more, without picking up any serious traction. Plug Power was aimlessly driving around for more than a decade with no clear direction [] until CEO Andy Marsh took the reins in 2008.

Marsh began talking to Plug Power's customers, examining what worked and what didn't work, and came to the conclusion that it made sense for Plug Power to pursue its line of products focused on the material handling market. [A]fter resembling a R&D powerhouse for nearly five years, Plug Power is ready to provide a compelling value proposition for businesses engaged with equipment in the material handling, TRUs, GSEs, and range extender markets, representing a conservative estimated combined market opportunity of tens of billions of dollars (not including GenKey offering).

Add the facts that Plug Power is expected to gain exposure to the Asian market through a joint venture later this year, is in the midst of testing a fleet of FedEx vehicles equipped with range extenders, will be deploying Ground Support Equipment (GSE) vehicles for FedEx in 2014, and has been testing Transportation Refrigeration Units (TRU) with Sysco since last year, and it's clear that Plug Power has finally found a destination on its map that enables a straight path to profitability[.]

Source: Seeking Alpha via Yahoo! Finance; Plug Power: Inside The Belly Of The Beast

But there's more... Here's a snippet from an article on Bloomberg:

Plug Power Inc. rose to the highest in more than two-and-a-half years after an analyst said the company’s order from Wal-Mart Stores Inc. may lead to more customers including Coca-Cola Co. and Procter & Gamble Co.

“The six-site Wal-Mart order is also a framework contract for future sites,” Rob Stone, an analyst at Cowen & Co., wrote today in a note to investors. “We expect more deals with customers” including Sysco Corp., Kroger Co. and Bayerische Motoren Werke AG. Stone raised his 12-month price target to $5.50 from $5.

Source: Bloomberg News via Yahoo! Finance; Plug Power Advances on Expectation of More Deals Like Wal-Mart, written by Justin Doom.

Market Cap: $690MM

(as of Sep 13, 2013 financials)
Cash:                  $10,960,000
Short-term Debt: $700,000
Long-term Debt: $773,000
Revenue:             $4,627,000
Operating Loss  $3,916,000 (for the quarter ending Sep 30)

So in realized money, this firm is still a baby. Annual sales of ~$25MM is really small for a public firm. But, the articles above to point to reasons for bullishness, certainly. A stock price is the PV of all future free cash flow, so it's not today that matters, but rather, the colloquial "tomorrow." And tomorrow does look brighter than it ever has for PLUG. How bright?... I guess ~$680MM in market cap bright.

The Skew Tab snap (below) illustrates the vols by strike by month.

Provided by Livevol

I note the Mar skew in particular and that is has an upside tilt.  The option market reflects greater upside risk (potential) than downside risk, which is pretty remarkable given the stock is up infinity percent in the last month.  Look how low the volatility is in the Mar $4.5 and $5 strike puts is relative to the $9, $9.5 and $10 strikes.

For now, the option market reflects bullishness, but the overall risk is quite high (the overall volatility), so there is two-tail risk..; let's not fall into complacency.

To read more about skew, what is and why it exists you can click the title below:
Understanding Option Skew -- What it is and Why it Exists.

Finally, the Options Tab is included below.

Provided by Livevol

PLUG has earnings due out 3-13-2014 BMO, sp 3-12-2014 is the last day to trade ahead of that announcement.  The volatility in Mar is priced to 148.09% (green numbers across the top of the Options Tab) while Apr is priced to 128.60%.  That vol difference will grow as earnings approach and we will likely see Mar options priced to ~200% IV by 3-12-2014.

The volatility in this name looks like a biotech, and perhaps in some ways it has the same risk.  This was a $0.14 stock nine-months ago...

This is trade analysis, not a recommendation.

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  1. Great Article. The question that I cannot seem to find an answer out for with PLUG is about their supply chain. Sales going up are a great thing but if suppliers cannot keep up then what is the point of good sales. Been there done that with past jobs that I have had. I have yet for anyone to address these issues the way I would have. Not in the CC's and not in the analysts stories. So what does it matter ? the difference between sales being shipped and sales being back logged due to constraints on the supply chain. I would love to see a Bill of Material that breaks down the components so that this question can be answered properly. It could take no more than a high quality item such as a nut or bolt that requires specific material call outs to put a hamper on production. Now I am not suggesting this is the case but having experienced these problems first hand when a company triples their sales forecast it could be a very real problem. If anyone reads this post and has an answer please let me know at

    1. With current facilities and suppliers, Plug can produce up to 10,000 unit per year, with no problems. I believe current year orders ( so far ) are around 7,000 units. So yes, they could have some growing pains. Most growth companies do.