Plug Power Stock Up 9% Today – Time to Buy PLUG Stock?

The price of Plug Power stock is up 9% this morning in pre-market stock trading action making this the third consecutive day of strong gains for the renewable energy stock despite the absence of a specific positive catalyst.

On 24 February, shares of Plug Power rallied more than 10% during a session that saw above-average trading volumes and the uptrend continued the day after with shares rising another 3%.

On 26 January, Susquehanna Bancshares initiated coverage on the stock with a Positive (buy) rating and a price target of $26 per share.

“Our Positive rating largely reflects Plug’s top-line growth potential as the green hydrogen ecosystem develops over the next several years, allowing for the stock’s relatively rich valuation”, stated Biju Perincheri, the analyst in charge of researching the company for the financial services firm.

The analyst added that the company is in a favorable position to generate double-digit revenue growth in the next decade by providing end-to-end solutions.

Meanwhile, on February 17, Plug Power announced that it acquired Joule Processing LLC, a company that provides equipment for oil and gas midstream companies. Joules’s cryogenic process technology can reduce the cost of liquified hydrogen by at least 25%, stated the company.

This would result in savings of around $200 million for Plug Power in the next four years. The cost of the acquisition was $160 million of which $30 million were paid upfront while the remaining $130 million will be paid in the future based on “meeting liquefier efficiency”.

Even though both of these developments were positive for Plug Power, they do not coincide with the date on which the latest rally started. Therefore, one could assume that there is an interested party behind the curtain buying millions of shares of the renewable energy company and this move is causing the price to jump.

Who that investor is or whether that is what is happening or not remains unclear but it is certainly a possibility.

What could be expected from this green energy stock in light of these latest developments? In this article, I’ll be assessing the price action and fundamentals of Plug Power stock to outline plausible scenarios for the future.

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Plug Power Stock – Technical Analysis

Upcoming changes in the United States macro landscape have led to a decline in the valuation of Plug Power and other growth stocks as the Federal Reserve is expected to hike its benchmark interest rate multiple times this year while tapering its pandemic-era asset purchase program at the same time.

For companies in the earliest stages of their development, tighter macroeconomic conditions may complicate the task of raising capital while risk premiums demanded from their shares typically increase.

Despite this recent 2-day rally, PLUG is still shedding nearly 20% of its value thus far in 2022 while the hydrogen stock is also trading 57.4% below its 52-week high and 22% below its 200-day simple moving average.

Right now, the $23.5 horizontal support remains the most important area to watch as a break above this marker could support the continuation of the rally in the following days. After that, the $30 level would act as a key resistance if the price keeps climbing.

Momentum indicators are favoring a bullish outlook but are still not sending strong clear buy signals. In this regard, the Relative Strength Index (RSI) is on an uptrend but has not yet moved above 50 while the MACD is also climbing but has not yet moved to positive territory.

For now, the outlook for Plug Power stock is neutral until there is further evidence that supports an upcoming full-blown trend reversal.

Plug Power is scheduled to report its financial results covering the fourth quarter and the entire 2021 fiscal year tomorrow after the market closes.

The consensus estimate for the firm’s revenues stands at $157.8 million with the lowest forecast sitting at $149.4 million and the highest at $171 million as per data from Seeking Alpha.

Meanwhile, the company is expected to report adjusted losses per share of $0.11. The lowest estimate for this metric stands at $0.18 while the highest sits at $0.07 per share.

As for the 2022 fiscal year, revenue estimates from analysts stand at $909.13 million resulting in an 82.4% year-on-year growth with the lowest forecast sitting and $829 million and the highest at $994.6 million.

The price action for Plug Power stock will be highly influenced by how the company’s performance meets or misses these estimates.

Based on options prices, market participants are expecting a 12% fluctuation in the price of Plug Power stock in the following four days of this week – after the company’s earnings report comes out.

Plug Power Stock – Fundamental Analysis

During the third quarter of 2021, Plug Power reported revenues of $143.9 million resulting in a 34.5% jump compared to the previous year. However, the company reported gross losses of $31 million amid elevated fuel costs and disruptions in the firm’s supply chain.

Back then, Plug Power raised its revenue guidance for 2022 to a range between $900 million and $925 million resulting in a forward P/S ratio of 14x based on yesterday’s closing price.

This is exactly what Susquehanna means when it says that the company is trading at a “rich valuation”.

During the first nine months of the year, Plug Power burned more than $350 million in cash while it reported total cash and equivalents of $3.37 billion.

The company’s solvency does not seem to be at risk based on those figures. However, whether the current valuation is pricing the firm’s prospects appropriately largely depends on the management’s capacity to achieve its ambitious goals for the firm.

Since the odds of that happening is uncertain, the valuation remains quite stretched from a fundamental standpoint. Moreover, the current macro landscape is not favoring rich valuations like these.

With this in mind, the risk of a sharp decline in Plug Power stock if the management makes some downbeat comments in regards to the business’s outlook for this year and beyond or if the company faces a setback in its plans is just too high to justify an investment at these levels while the upside potential seems rather limited as most positive developments seem to be already priced in.

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