Plug Power: A History Of Over-Promising And Under-Delivering

Plug Power (PLUG) is a speculative small cap fuel cell company that has exploded recently. This stock price is up almost 260% in the last three days and the stock price is up over 1700% from its 52 week low of 0.12 when the company was on the verge of bankruptcy. Plug Power has made some strides that merit some of the increase in stock price but this company has a history of over-promising and under-delivering and investors should take heed of the past.

Plug Power makes fuel cell modules that replace batteries for fork lifts. The fuel cell modules have several advantages over batteries but cost a lot more money. Several big companies have bought Plug Power's fuel cell fork lifts for their distribution centers/warehouses such as Walmart (WMT), Sysco (SYY), Coca Cola (CCE), and Whole Foods Market (WFM) as well as other notable companies.

However, adoption has been slow and Plug Power has a history of heavy losses. In fact Plug Power was getting seriously close to having to declare bankruptcy this past year. The company managed to raise money at very unfavorable terms to existing shareholders and at heavy dilution. The share count ballooned from around 38 million diluted shares a year ago to around 125 million today which is serious dilution. In May Plug Power picked up a strategic investment from its partner Air Liquide. This was the catalyst that started Plug Power on its upward trend.

The biggest pop for Plug Power's share price has come in the past few days. The company gave a business update and announced they expect to be profitable in 2014. Their version of profitability is "EBITDAS" (net income before interest, taxes, depreciation, amortization, and non-cash stock compensation expense) which is some late 90's tech boom version of profitability as opposed to GAAP (Generally Accepted Accounting Principles). However, the stock price has jumped from around $0.80 to $2.06 after the announcement.

Plug Power has made similar big predictions in the past that didn't pan out. In 2012 the company forecast revenue of 40 million and predicted gross margins of +10% in an investor presentation. The company actually booked 26 million in revenue, had gross margins of -57%, and a net loss of 32 million.

The company has followed this up so far in 2013 with 18.58 million revenue, gross margin of -46%, and a net loss of 33.87 million. Needless to say the company badly missed their target.

Bookings have started to pick up as the company announced 17.8 million in bookings since October 8th and they announced they expect orders to range between 30 million and 40 million for the fourth quarter of 2013. Even if these orders do get booked they may be more likely one time events than the run rate going forward. It is very likely that Plug Power's existing customers put off orders to make sure the company was not going to going bankrupt. The increase in orders is no guarantee of a profit and based on the past I find the company's prediction of an "EBITDAS" profit in 2014 hard to believe.

Another item potential investors should consider was Plug Power was in jeopardy of being delisted from the NASDAQ. It is not hard to imagine that the CEO of a struggling company would put out an overly optimistic business forecast with the hope to jolt the stock price and to avoid having to perform a reverse split. A reverse stock split is usually is a death spiral for a struggling company like Plug Power.

The stock price of Plug Power has exploded the past few days based on an unexpected and in my opinion unlikely forecast of "EBITDAS" profitability in 2014. If the past is any indication of the future potential investors should be wary.

Source: Plug Power: A History Of Over-Promising And Under-Delivering

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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