Friday, April 25, 2014

Investors Unplugging from Plug Power

Over the past few weeks the fuel cell developer Plug Power (PLUG:  Nasdaq) has made a series of significant strategic moves.  Unfortunately, not many investors appear impressed.  The stock has traded down 45.3% since the beginning of March 2014 when PLUG set a new 52-week high of $11.72.  That is a dizzying drop! 

Near the beginning of March a series of hints and winks from Plug Power’s CEO about a possible deal had driven the share price up to that record price level.  However, the stock had already collapsed by the time the company’s plan to acquire ReliOn was finally formally announced the first week in April.  The price tag for privately held ReliOn, a developer of fuel cell stack technology and fuel cell systems, was a modest $4 million. 

The package included 34 new patents and a strong employee base with expertise in PEM (proton exchange membranes) technology that is at the core of ReliOn’s low-cost, stacked design.  Plug Power apparently intends to incorporate this design into its GenDrive fuel systems.  ReliOn has already achieved commercial success with its fuel cell stacks.  It has over 5,000 of its fuel cell stacks in the field.  However, riding the coattails of the GenDrive system could help ReliOn to register the volumes that will bring it to profitability.  Indeed, Plug Power management claims the ReliOn deal will be accretive in the year 2014.

Earlier this week Plug Power announced its intention to enter into a joint venture with Hyundai Hysco to develop and market fuel cells in the Asia market.  Hysco has developed a stack and plate technology that will be used in the designs.  Hysco also have a strong reputation with Asian customers and that should be a plus for market penetration.  Investors gave a big yawn when the news was made public.  Even management’s more detailed comments during a conference call with analysts failed to ignite any much interest. 

Investors did not react until the next day when Plug Power announced a public offering of common stock.  Management had cited a strong backlog of GenKey orders totaling nearly $80 million and featuring Plug Power’s fuel cells and hydrogen distribution infrastructure.  Unfortunately, there were few cheers of enthusiasm on news of the company’s offering plans.  The stock may now be oversold.

It is not likely that Plug Power’s financial report in 2014 will be impressive.  Of course, the company is no stranger to red ink.  In the most recently reported twelve months, Plub Power lost $62.8 million on sales of $26.6 million.  Shareholders are hungry for profits or at least a reduction in the cash burn.  In the same twelve months the company used $26.9 million in cash to support operations.  No one wants to see the proceeds of a dilutive common stock offering go up in smoke so to speak as meager sales fail to cover expenses.

This might be a situation where management needs to inspire some enthusiasm among investors to hold the course.  Unfortunately, Plug Power’s CEO is much better at leaks and rumors than providing sound information on the company’s business model or financial condition.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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