- Leading hydrogen fuel cell maker Plug Power is due to report Q3 FY 2015 earnings on Nov.9.
- The company gave upbeat sales guidance during its last earnings call.
- Plug Power shares have been making strong gains after a Wall Street analyst gave an upbeat outlook for the company.
- Will Plug Power's upcoming report prove these sentiments to be accurate?
Leading hydrogen fuel cell manufacturer Plug Power (NASDAQ:PLUG) is due to report third quarter fiscal 2015 earnings on Nov. 9 before markets open. Plug Power said during its last earnings announcement that it expects to hit at least $30 million in revenue for the third quarter while its gross margins, a key focal point for the loss-making company, will continue to improve incrementally. The company also reaffirmed its earlier guidance of at least $100 million in full-year 2015 revenue and gross bookings of $200 million.
Plug Power managed to exceed earnings estimates during the last quarter after missing over the prior three quarters. The company stands a good chance of repeating the feat if recent developments are any indication.
Plug Earnings Surprise History - Quarterly
Plug A Pump and Dump Stock?
To many investors, Plug Power is your classical pump dump stock, capable of making large gains or losses in a matter of days whenever one analyst or the other provides their unique insight on the company. Plug Power shares are up close to 19% over the past five days after Matt Maragolis, chief research analyst at Wall Street Forensics, provided some positive commentary on the company’s growth prospects.
Source: CNN Money
In a series of tweets, Matt said that Plug Power is his #1 rated forensic pick, and then went on to give his reasons in this Seeking Alpha article. The main gist of Matt’s analysis is that Plug Power has managed to resolve reliability issues that plagued the company’s GenDrive offerings during the second half of 2015. The analysts says that Plug Power now produces in-house fuel stacks as opposed to outsourcing it to Ballard Power Systems (NASDAQ:BLDP). This has helped the company to produce low power stacks with improved product lifecycles, which in turn will lead to better gross margins and a positive service revenue. Matt says that his visits to Plug Power’s Latham manufacturing facility revealed a lot more activity going on compared to his previous visits. The analyst projects the company will report revenue of $33.4 million on sales of 1,250 GenDrive units. If Matt’s estimates turn out to be accurate, expect Plug Power shares to make strong gains post earnings.
But is Matt’s estimates turn out to be off the ballpark, this won’t be the first time the company will be a pump-and-dump victim by analysts. Plug Power shares made astounding gains of more than 560% in the early part of 2014 after CEO Marsh said the company would hit $70 million in revenues for the year. The shares, however, were badly hammered early this year when Citron Report released a damning report about the company saying the company’s management had a bad habit of overpromising but under-delivering.
Investors have remained skeptical about the real potential of hydrogen fuel cells going mainstream, and the shorts have always doubled down hard on Plug Power shares whenever it failed to meet expectation by even the smallest of margins. Plug Power remains stuck in loss-making territory, and needs to grow sales to a certain level before revenue can outstrip costs and allow the company to become profitable. During the second quarter, Plug Power reported revenue of $24 million, good for 39% Y/Y growth but a net loss of $17.32 million, or EPS of -$0.05, slightly worse than the previous year’s reading of -$0.04. The company’s cost of revenue, its biggest line item, clocked in at $22.4 million comprising primarily of $11.6 million cost of product revenue and $11.5 million cost of service revenue. That figure was significantly higher than the previous year’s reading of $17.1 million cost of revenue consisting primarily of $10.4 million cost of product revenue and $5.9 million cost of service revenue. The large increase in the cost of service revenue is therefore primarily to blame for Plug Power’s growing losses.
But Matt pointed out in his analysis that Plug Power’s cost of service revenue will actually turn positive as older less reliable GenDrive units are gradually phased out and the newer more reliable units become more mainstream.
Plug Earnings - Summing It Up
With the expected positive report and more than 20% of Plug Power’s shares in the hands of shorts, it appears as if Plug Power’s upcoming earnings report will create a perfect opportunity for a short squeeze and some decent share gains, if Plug shows that it has under-promised and over delivered.