Plug Power Inc

-0.08 (-2.74%)
: $2.83 -0.01 (-0.35%)
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Plug Power’s Huge Risk and Opportunity


Plug Power Inc. (PLUG)
2.61 -0.05 (-1.88%)
Sector: Electrical Equipment
Published by Capital Market Laboratories on 2015-06-17

What does the rating mean?
3-Month Stock Move: -5.1%
6-Month Stock Move: -4.4%
12-Month Stock Move: -36.3%
30-day Option Implied Volatility: 52.0%
Implied Stock Range: ($2.30, $2.90)
What does "implied stock" mean?

PLUG is in the fuel systems and storage business. It hit the mainstream news rounds when the stock rose literally from pennies to about $12 in stock price. Since then, the stock has fallen back down over 80%. The run up was a bit of bad money chasing overblown momentum, but the fundamentals surrounding the firm did drastically change for the better. That's simply a fact. All of a sudden the company is signing multi-million dollar contracts and to date, those contracts have (for the most part) come in.

On the other hand, the company has never turned a profit or positive free cash flow and it is sustaining operations with a rather sizeable stock selling program. But, love it or hate it, PLUG has seen revenue (TTM) rise over both one- and two-years by 164.55% and 174.46%, respectively. Revenue in the most recent trailing-twelve-months is $68 million. Last year PLUG reported $26 million and two-years ago annual revenue was $25.

The average estimate for next quarter's revenue of $19.7 million is well above last quarter's $9.4 million. In English, revenue is busting at the seams. It's everything else that's the problem.

Here are the earnings estimates, note the expected revenue increase.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-08-13 $-0.06 $19.7 M $19.7 M $9.4 M Provided by ZACKS

Here are the core fundamental factors driving the 1.5 star rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 68 26 25 RISING

Operating Margin (QTR) 0.425 0.43 0.50 FALLING

Net Income (TTM US$ Millions) -24 -130 -34 RISING

Levered Free Cash Flow (TTM US$ Millions) -32 -19 -12 FALLING

Capital Expenditures (TTM US$ Millions) 1 0 0 RISING

Stock Returns and Chart

PLUG is down -5.1% over the last three months and down -4.4% over the last six months. The stock has returned -36.3% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
Click here to interact with this stock chart

Now let's examine the visualizations of the critical financial measures.

Revenue (TTM US$ Millions) 682625RISING

When a company grows revenue 164.55% year-over-year, we must recognize the added importance of top-line growth, perhaps even above and beyond earnings, free cash flow and margins. Regardless of the low 1.5 fundamental (star) rating, if revenues continue to explode, everything could follow suit for PLUG. Having said that, we must (and will) look at the rest.

What do all these numbers mean?
PLUG's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.

Let's look at Revenue (TTM US$ Millions) in the chart below. Note the EXPLOSION.

Click Here to Interact With This Chart

Operating Revenues/Operating Expense 0.4250.430.50FALLING

This ratio (which simply represents how much revenue is generated per one dollar of expense) must be at a minimum above 1.0 in order for a company to turn an operating profit. For the latest quarter PLUG showed a ratio of 0.425. So, just to be clear, PLUG pays one dollar in expenses to generate $0.43 in revenue. If you look closely at the chart, you'll note the firm has never even been close to $1 (the highest level ever was still below $0.75). Even further, that awful margin is actually getting worse.

What do all these numbers mean?
One year ago Operating Revenues/Operating Expense was 0.43. In the last year we can see operating margins are decreasing and less than 1.0 for the most recent quarter (below the critical level).

PLUG's fundamental rating was affected from the operating margin numbers in the following ways:
1. The current value is below the critical 1.0 level (the firm generates an operating loss).
2. The one-year change was negative (lowers the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.

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Net Income (TTM US$ Millions) -24-130-34RISING

Even though PLUG loses money every day it exists, this metric is in fact improving, and it's improving rather drastically. For the most recent trailing-twelve-months (TTM) the company reported net income of -$24 (million). A year ago that was a $134 million loss. The quarterly loss most recently reported was "just" $12 million. Hey, that's better.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.

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Levered Free Cash Flow (TTM US$ Millions) -32-19-12FALLING

I'll keep the conversation short surrounding Levered Free Cash Flow (FCF) (TTM US$ Millions). The bottom line is it's negative and getting worse. For the full year ending Dec 2012, PLUG generated negative $4 million in FCF. For the most recent trailing-twelve-months, PLUG has generated -$32 million in FCF.

Let's look at Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. It ain't pretty.

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Capital Expenditures (TTM US$ Millions) 100RISING

This is a really interesting metric to follow for PLUG. While on one hand Capital Expenditures (CapEx) (TTM US$ Millions) has collapsed from its levels in 2000 (~$12 million) down to $1 million in the most recent quarter, the company has disclosed that its current manufacturing capacity to deliver all of the contracts it has in place and several more it anticipates. This may actually not be a case where the firm is suffocating itself by cutting CapEx, but rather a firm that is ready to deliver on huge growth.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.

Click Here to Interact With This Chart

PLUG was $0.30 stock. PLUG was a $12 stock. Now PLUG is a $2.50 stock. Depending on your frame of reference, it's either up huge or down huge. The facts are these:
1. Revenue is exploding.
2. Net Losses are shrinking.
3. Day-to-day operations are funded by stock sales.
4. The firm claims to have built enough capacity to handle a lot of business without further expenses.

Either you believe the growth story and ignore the current fundamentals, or you ignore the growth story and believe the current fundamentals. The equity market seems to believe the growth story as that $2.50 stock price actually represents nearly a $500 million market cap. For whatever it's worth, the option market is pricing in less risk in the next 30-days than it has ever priced before. How's that for another monkey wrench?