In a week that was relatively quiet for most markets outside the Boeing (BA) bombing, Plug Power (PLUG) is one of the best gainers and currently exceeds 30% for the week. This 30% rally is due to a 50% rally in the previous four weeks and the title appears to be ahead of itself here in the short term. While revenues continue to accelerate for the company, with a 12% increase on a sequential basis in the most recent quarter, the stock is now over 100% for the year. It is entirely possible that this rally will continue in a short-term top at higher levels, but the odds indicate that the rally risks losing ground here at the $ 2.55 level. I believe the most prudent decision here is taking advantage of this strength on most of its position and then riding the rest of the trade with zero risk. In practice, this means that if I had the title, I would have sold 3/4 of my position above the $ 2.40 level.
Plug Power (PLUG) is a designer of fuel cell systems and the company continues to record strong revenue growth in recent quarters, with 2018 as the year significant for the company. The company reported total gross billings of $ 184.8 million for the 2018 fiscal year, an increase of 42% compared to 2017. In addition, Plug Power has managed to quadruple its quarterly revenue in the last two years (from $ 13.7 million in the first quarter of 2017 to $ 59.8 million in the fourth quarter of 2018) and this growth is accelerating in the last two quarters. Last year, the company produced its first stacks of sheet metal. According to the company, these metal stacks are 2.5 times more dense than their previous technology and offer a cost reduction of 25% in volume.
GenDrive fuel cells of the company continue to be adopted by large companies. Some companies that currently use GenDrive products include Home Depot (HD), BMW (OTCPK: BMWYY) and Coca Cola (KO). Some of the advantages of Gendrive fuel cell products are increased productivity, lower operating costs and zero emissions. The management of Plug Power also discussed the potential of four major commercial announcements for the 2019 fiscal year. While the minimum color was provided on the details of these announcements, the CEO said he had worked with these offers for over a year.
Taking a look at the annual earnings per share of Plug Power, we can see that the company tends to reduce its losses every year. Should this trend continue, we expect to be almost positive for fiscal year 2021. The company expects to see its smallest loss ever as a public company in FY 2020 of only $ 0.11 based on current estimates of analysts. Ideally, before investing in a company, I'd like to see their annual positive earnings per share, which is why I'm avoiding the name at the moment.
It may be more difficult to evaluate a company without positive gains based on the earnings trend, so in in this case it is useful to see if we can get any insight from sales that, hopefully, have a more significant direction in place. Moving on to sales growth, we undoubtedly see some traction on a sequential and annual basis. The earnings of the most recent quarter increased by 92% on an annual basis, and even 12% sequentially. This followed the 47% gain sequentially in the previous quarter, which makes the most recent sequential revenue increase even more impressive. Essentially, quarterly revenues have increased by almost 70% since the first quarter of 2018. So far the company is on track to beat its lead by $ 155 – $ 180 M for the 2018 fiscal year with $ 149 millions of revenues already recorded in the first three quarters.
The chart below that I generated revenue also gives us a look at the current trend. While FY 2017 was a slight deviation from the rising trend, FY 2018 has so far been a strong acceleration to the new maximums for Plug Power revenues. In the last two quarters, the company has generated revenue of $ 113 million, a value greater than the total revenue recorded for the entire fiscal year 2017.
Based on the revenue of the company accelerating in the last two quarters and the potential (as discussed in the conference call ) for significant announcements this year, this is undoubtedly a positive aspect for the company fundamentally. The other positive is that there appears to be the potential for the company to finally put a positive year of annual earnings for FY-2021 if the company can achieve its goals. While this may seem like a way out in the future, the market is generally waiting for over 12 months or more, so it's closer than we think.
So why take profits in a company that is growing and has the possibility for four important announcements this year? I believe the stock is already outdoing itself in the short term and the price in some of these positive developments already. At $ 1.40 or less, none of this news was evaluated in just a month ago, but at $ 2.40 and beyond, I believe most of this news is included in the title. This does not mean that the title can no longer go in the long term and is a sale outright, but the odds would suggest that the title will most likely come in the coming weeks even if it is headed up by the end of the ;year.  Looking at a weekly chart of the underlying stock, we can see that it is the furthest stretch outside its bollinger bands since Q2 of 2017. This rally has led to a 30% drop in stock over the next few weeks, and in based on this, a 15-20% drop from these levels would not be surprising. Even if there is no guarantee that this will happen, most often it happens.
Moving on to a perspective that follows the trend of the stock, we can see that the stock is above the 50-day moving averages and 200 days after this advance, a positive sign . The title will probably see a golden cross (50-day moving average crossed with a 200-day moving average) in the next two weeks if the stock can hold above the $ 2.00 level and this would also be positive for the stock. If we can get a golden cross, I expect that area to act as a new support level if this rally is real ($ 1.85). If it cannot, this would be a clear change of character compared to the constant purchases we have seen in recent weeks.
Finally, taking another look at the title, we can see that it is going well in resistance 2+ years. The $ 2.50 level has been a difficult sector to exceed for stocks over the past two years and I expect that at least I can see a 15-20% retracement after reaching these levels in a short time.
While Plug Power remains a convincing (albeit speculative) long-term opportunity given the acceleration of revenue growth, shortly term the stock went too far. Based on past instances of getting this overbought, it seems very likely to see a sharp 15-20% drop from the $ 2.50 level. If we were swapping the stock, I would sell 3/4 of my position above $ 2.40 and I would use a larger stop on the rest of my position to try to drive it for a bigger move. There is clearly the potential for some positive developments going down the pipeline towards the end of the year, but after a 100% change in just six weeks, I think most of it is evaluated.
As long as the bulls can defend the $ 1.85 area on a weekly closing, I would consider any pullbacks to be noise and likely to be purchased. A weekly closing below $ 1.85 would be a change of character and would suggest that this rally may have been as unique as the previous two years. For this reason, I would use a defensive stop for $ 1.85 for the rest of my position after selling at least 3/4 in strength above $ 2.40.
Disclosure: I / we have no positions in any of the mentioned titles, and I have no intention of starting any position within the next 72 hours. I wrote this article alone, and expresses my opinions. I'm not getting compensation for this (other than Seeking Alpha). I have no business relationship with any company whose title is mentioned in this article.