Plug Power (PLUG, Financial) reported another quarter of losses as the company shared its Q3 quarterly report yesterday. The company reported loss per share of 6 cents on revenues of $31.43 million. The Wall Street analysts were modeling losses of 5 cents per share on revenues of $30.7 million. Although the company’s revenue jumped close to 60% year over year, the stock plummeted over 14% yesterday due to the earnings miss.
The result may not look too bad, but Plug Power’s stock had been hyped up prior to earnings. After hitting 52-week lows of $1.57, the stock staged an impressive turnaround and appreciated over 60% in the next few weeks. The hype was driven by Wall Street analyst Matt Margolis’ tweet suggesting that the company would report a stunning quarter. Given the build up to the company’s earnings report, Plug Power had to deliver on every expectation so as to sustain its meteoric rise. However, the company failed to do so as its earnings fell below the consensus estimates due to increasing expenses and shrinking profit margins.
Historically, Plug Power has never delivered a clean quarter. Thus, investors were hoping for a miracle this time around due to the excessive bullishness of Margolis.Ă‚
Despite the massive plunge yesterday, the stock may have more room to fall as the company hasn’t reported a profitable year for many years. In addition, I believe the company’s management is incompetent and has always pumped up stocks before earnings by making false promises. Plug Power's management had promised 15% to 25% gross margin many times over the last two years. To date, however, the company is struggling to report a profit.
Due to selling their products at a very cheap valuation, the company has gained contracts from big customers like Wal-Mart (WMT) and Home Depot (HD). However, the company is growing revenue at the cost of profits and this strategy will not prove to be sustainable in the long-run. The company will soon run out of money and will have to resort to secondary offerings in order to raise more cash.
Over the years, Plug Power has diluted the stock many times and has nothing to show for it. The company has destroyed shareholders’ value and is yet to report a financial year. All these factors point toward an incompetent CEO and board, which is why I would suggest investors to stay away from the stock.
Conclusion
Despite the headwinds, Plug Power isn’t trading at a conservative multiple. The stock commands a P/S ratio of over 6 and the company isn’t expected to report a profitable quarter for two more years. Given the risks, I think investors should consider selling Plug Power and would only recommend buying the stock when the company’s management lays out a clear plan regarding its turnaround.
