Plug Power Jolts Higher; Here Are 2 Ways to Play It

Daily Updates


The sales growth is impressive — 89.8% for the third quarter after just 19.3% for the second quarter but 119.5% for the first quarter. The share price has exploded higher. Plug Power (PLUG) closed at $25.70 on Monday evening. The shares were trading at $28.28 about a half-hour after the open here on Tuesday. Less than a year ago, in late December, these shares bottomed out at $0.99, two days in a row.

That’s right. There is no missing digit. These shares traded below a buck less than 52 weeks ago. Heck, they were still trading at a rough $2 this past August. Interestingly, increased sales have not brought about profitability — at least not yet. Plug Power posted negative earnings per share last quarter, the quarter before that and so on. Plug Power is expected to post negative EPS for the current quarter. The sales comps are expected to get tough this quarter as well — could be a year-over-year decline.

For Those About to Rock…

We salute you — AC/DC, 1981

For Those Unfamiliar…

Plug Power has been around a while. Created in 1997, it historically has supplied fuel cells for forklifts operating in warehouses run by Amazon (AMZN) , Walmart (WMT) and Home Depot (HD) . Indeed, Amazon holds an equity stake in the company. Plug Power’s focus these days has been on the expansion of comprehensive hydrogen fuel cell technologies that can power electric motors as the power, energy and transportation industries evolve into something more efficient, less ecologically damaging and more sustainable.

Simply put, what started out as a way to power smaller forklifts has evolved into businesses that include automated vehicles, commercial fleets, airport support and maybe eventually vehicles used for last-mile delivery as e-commerce takes over the world. Down the road, Plug Power’s technologies will likely end up powering zero-emission vehicles on the consumer side as well as robotics and the data centers for corporate America. According to McKinsey & Company, the global hydrogen economy has the potential to reach $2.5 trillion within 30 years, or roughly the ability to satisfy 18% of the planet’s demand for energy.

News

First, late November. Plug Power raises roughly $1 billion in capital through the sale of almost 44 million new shares of stock at $22.25 apiece. Yes, that diluted the shares a bit, and they sold off, for a few days. The sale left Plug Power with a cash balance of $1.7 billion and a plan to build five regional hydrogen facilities in the U.S., two by 2022 and the other three by 2024.

Now fast forward to here on Tuesday. Plug Power announces a new deal to supply Walmart with sustainable solutions for use in the retail giant’s e-commerce network, expanding upon an already broad relationship. Plug Power already supports more than 9,500 GenDrive fuel-cell-powered vehicles used by Walmart at 37 U.S. distribution centers.

The Chart

Have I missed the move? Technically, the trend is sound. Even with the expansion in new shares, 16% of the entire float is held in short positions. That’s more than 66 million shares held short. That’s a couple days’ volume. I think I can play this name, but this will be no “set it and forget it” stock. There will be volatility, and the risk will need to be managed.

Trading Ideas (minimal lots)

– Buy 100 shares of PLUG at or close to the last sale of $27.50.

– Sell one PLUG $28 call expiring this Friday at a rough $1.10

Net Basis: $26.40

– Could be called away at $28 in three days for a quick 6% profit

or…

– Buy one PLUG $27.50 call expiring this Friday for about $1.25

– Sell (write) three PLUG $26 puts expiring this for a rough $0.55

Net Credit: $0.40

– Could end up long 100 shares of PLUG by this weekend at a net basis of $27.10 with the stock trading above $27.50.

– Could also end up long 300 shares of PLUG by this weekend at a net basis of $25.86, with the shares trading below $26.

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