Is Plug Power (NASDAQ:PLUG) topping out? Many times this year, PLUG stock has appeared to be peaking, only to continue heading higher as megatrends remain firmly on its side.
Yet, we may not see a repeat of this hydrogen-fuel-cell play’s blockbuster 2020 performance in the new year. Despite many red flags, Plug Power shares soared from around $3 to today’s prices — just under $25 per share — thanks to continued speculation on electric vehicle (EV) and EV-adjacent stocks.
But if that enthusiasm continues to cool, don’t expect shares to stay near current prices for long. With its valuation unsustainable, its insiders cashing out stock and options and its continued dilution problem, there’s a lot that could send PLUG stock lower in the coming months.
Granted, the recent selloff in EV stocks could be speculators just taking a breather. It may not be a full-on burst of the bubble. However, a bird in one hand is worth two in the bush. So, it may be worthwhile to cash out now.
PLUG Stock’s Valuation Makes No Sense
Sure, with President-elect Joe Biden’s $2 trillion plan to go green, the future looks bright for this eco-friendly stock. But Biden’s platform is much more moderate than the controversial “Green New Deal.” Namely, instead of pushing for a full pivot away from non-renewable energy within a decade, the plan calls for a much slower transition from fossil fuels.
What does that mean for Plug Power? Current projections on the shift towards alternative energy may be on point. But, we likely won’t see these trends accelerate faster than we anticipate now.
With this in mind, we’ll assume, at best, the company hits its ambitious 2024 performance goals. That means $1.2 billion in sales and $250 million in annual EBITDA a little more than three years from now.
That’s a big improvement from where things stand today, at around $308 million in annual revenue and EBITDA losses of $59 million. But there’s no way those numbers support the stock’s current market capitalization of $10.3 billion.
Yes, so far this valuation issue hasn’t hurt PLUG stock. However, this and other issues could start to affect its share price, especially if rampant speculation in EV and green wave stocks continues to peter out.
Insider Selling and Dilution Haven’t Had an Impact — Yet
So, with shares trading at high multiples of what are future projections, today’s valuation looks unsustainable. And it may not just be bears like myself who see this. Some commentators note that insiders may also believe shares won’t stay at today’s prices for long.
That is to say, insiders have been cashing out stock and exercising options like it’s going out of style. What’s more, this insider selling didn’t just start when shares soared post-election. Per the calculations from SeekingAlpha, the average insider selling price was $11.34 per share. That’s less than half of where PLUG stock changes hands today.
Think of it this way — do you want to buy what insiders were willing to sell at much lower prices?
Plus, this isn’t the only warning sign with Plug Power as it trades above $20 per share. For one, dilution continues to be a concern. Back in March, the company had over 321 million outstanding shares, and around 200 million “dilutive potential shares” — that means convertible securities, options, restricted stock and warrants.
Flash forward to now and outstanding shares have soared to over 415 million. Sure, dilutive potential shares went down, but not by much. And now, with the recent equity offering adding another 38 million shares of common stock, the company continues to raise capital by cutting the pie into too many slices.
True, these red flags haven’t made a dime of difference for those bidding green wave stocks higher. Yet, the heavy speculation that helped PLUG surge more than sevenfold could be fading fast.
If that happens, this company’s many chickens will come home to roost.
Follow Management’s Lead and Sell
After getting a second wind from the U.S. Presidential election results, EV and EV-adjacent stocks like Plug Power have sold off in recent days. Is this sector’s bubble about to burst, or are speculators just taking a break?
It’s hard to tell. Moreover, as the story behind this stock still holds, its also hard to see the narrative changing. But, with bubbles, it’s a matter of when — not if — they pop.
So, what’s the play with PLUG stock? Follow the lead of the company’s management and sell into strength. Exuberance for this stock could keep on trucking. But if you bought in at much lower prices, it may be best to call a top too early rather than too late.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.