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Independent Security Analysis. Technical Analysis. Fundamental Analysis. Watchlists. My Portfolio.

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Tesla And Plug Power: Two Small Giants Climbing To The Top

By The Wall Street Fox → Monday, March 10, 2014

Tesla (TSLA) and Plug Power (PLUG) go hand in hand in the eyes of the media, and after CNBC reporters mentioned the two alternative energy companies in the same sentence during Plug Power's exclusive segment on Friday's edition of Squawk on the Street, the floodgates were opened and shares of the fuel cell manufacturer buoyed to extraordinary multi-year highs. The trading volume behind Plug Power has been explosive, with more shares exchanging hands than are outstanding during Friday's session. With more and more mainstream exposure being appointed to this resurrected fuel cell integrator and the industry in general, there are signs that this raging bull still has fuel in the tank.

A bear trap was in place for speculators after it was announced that Plug Power would be conducting a secondary offering with a single investor at $5.75 per share during the middle of last week. While many anticipated the stock to fall from its highs of $7.15 down to $5.75 levels (including me), the stock leaped higher from $6.50 after news broke that Plug Power's CEO, Andy Marsh would be appearing on CNBC. Levels of $8.00 were broken shortly after the interview occurred.

The hype surrounding Plug Power continues to blossom, and with the company's staggering one-year return hovering around 4800%, the rising question among traders and investors is how much juice is left in this beast? With Plug Power's newly implemented (and profitable) business model, an impending Asian-based joint venture, and more contracts anticipated from approximately two dozen Fortune 500 customers, the possibility of shares breaching double-digits in the short term should not be ruled out, especially after breaking a multi-year resistance level on massive volume.

Source: TradingView

However, while shares of Plug Power have a strong chance of continuing their rise throughout 2014, I advise caution to anyone purchasing shares of Plug Power at current levels, especially with a binary event such as earnings occurring on March 13th. At this point, only risk-seeking traders or extremely long-term oriented investors should be playing with Plug Power. A drop below $6.00 should be heavily exploited as a buying opportunity.

A staggering run-up, growing hype, and a compelling alternative energy product has the masses comparing Plug Power to Tesla Motors, and it makes sense. Both companies excite investors since generating sensational gains in a short period of time, and the futures for both look bright due to their competitive advantages, high barriers to entry, and virtually unlimited growth potential. Analysts and institutions have gotten behind both names, insiders of both companies are holding onto shares, and the growth potential has barely been scratched by these two budding green-focused businesses. A review of Tesla and its dramatic one-year stock rise may shed light on where Plug Power currently stands in its transition to a hyper-growth company, and how much more shares stand to gain as the world's premier fuel cell integrator begins to deliver.

Tesla Motors: Rise to the Top

Tesla Motors is a start-up electric automobile producer based out of California that filed for an IPO seven years after inception in 2010, being the first American car producer to go public since Ford's 1956 IPO. The hi-tech car company depends on lithium ion batteries to power its lineup of luxurious electric sports cars, and the company finally began to pick up traction among both customers and investors in 2013, thanks to a number of revamped car models and price points. The high-priced cars have been well-received by consumers who could afford them, and after blowing past Wall Street's expectations in the beginning of 2013, Tesla has been off to the races.

The hype surrounding Tesla stemmed from improving fundamentals and rumors alike. From recording a profitable quarter for the first time since inception, to Apple buyout rumors, to a possible pairing with Google's self-driving car technology, Tesla has been a news-driven stock for the past year, with visionary CEO, Elon Musk basking in the spotlight. Ever since the momentum and hype behind Tesla began to build in early 2013, the price action has resembled inertia: the bigger the force, the harder it is to take down.

With Tesla's monstrous rise to an all-time high of more than $250, more and more shorts continue to fuel the fire lit under Tesla, and as the company explores more opportunities for growth, a positive news development can trigger another short squeeze, propelling Tesla to $275… and then $300 the next time… and then $325 thereafter, and so on and so forth.

Tesla is a hyper-growth story. The company's production has more than doubled in a year's time, and revenues jumped from $413 million in 2012 to more than $2 billion in 2013. The company's well-received products are targeting a massive market but have yet to significantly exploit it, which serves as a testament to Tesla's outstanding growth prospects (not including the recently announced gigafactory).

But when you put Tesla down on paper and begin to crunch even the simplest of numbers, it is easy to understand why there are so many critics that call Tesla's current $30 billion valuation far out of whack (compared to ~$5 billion in 2012).

Bears have been designating Tesla as the short of the century, after noting that the company has a valuation roughly half of [[GM]] and Ford (F), yet plans to sell less than 100,000 vehicles in 2014, compared to the millions of vehicles Ford and GM sell on an annual basis. Crunching numbers and attempting to determine a concrete value for a company that is experiencing a phase of hyper-growth is useless, and shorting the said company would be playing with fire. The rise in Tesla is illustrated below.

Source: TradingView

Plug Power: Rise To The Top

Plug Power has been in operation since 1997, and went public in 1999. The company experienced a frenzied stock price appreciation during the dot com bubble due to the hype surrounding the emergence of fuel cell technology, but eventually settled lower on a yearly basis for more than ten years as investors realized that the company was ways away from profitability.

Fast forward to 2014, and Plug Power avoided a dreadful reverse split, is on the verge of recording its first-ever EBITDAs positive quarter, and has received validation of its value proposition from multiple Fortune 500 customers.

Plug Power's 4-digit percentage gain has been buoyed by the avoidance of bankruptcy, increased order bookings, awarded government contracts, initiation of analyst coverage, and more, as illustrated below.

Source: TradingView

Plug Power, like Tesla, is experiencing a phase of hyper-growth, with annual revenues expected to more than triple, and because the company is looking to expand its presence in multiple new markets, there is no telling when this phase will end. The inertia behind Plug Power is just beginning to build, and once investors fully understand the sheer size of Plug Power's target market, shares should continue higher. Entry into Asia and the TRU/GSE/Range Extender markets should provide a considerable amount of press for this news-driven stock in the coming quarters, and as Plug begins to execute its business initiatives and generate significant revenues, more investors will jump into Plug.


Attempting to short Plug Power in the midst of an extensive multi-year comeback is like trying to catch a falling knife. Solid fundamentals, an increased amount of hype, and future speculation are what's driving shares of Plug Power currently, and while a correction is in order, there's no telling if that correction will occur at $8.30 or $10.30. CEO Andy Marsh has a knack for surprising investors with high-impact news, and besides Thursday's upcoming conference call, there's no telling when he'll strike again. (Quick Note: I have never seen a CEO so happy/giddy during an interview)
The massive short squeezes being triggered for both Plug Power and Tesla Motors should serve as a warning to prospective shorts, and just goes to show how much misunderstanding plagues these two emerging hi-tech companies. Valuation calculations do not equate to accuracy in stock movements, which is what led to so many shorts getting buried. Stock prices are based off of the future earnings of a company, and Wall Street will go to extreme lengths to buy a stock if the company has serious growth prospects.

Plug Power and Tesla Motors represent two emerging companies that are poised to become the giants of their respective industries after operating at a loss for more than a decade and being written off for dead by most investors. The sheer size of Plug Power's and Tesla's target market, and the compelling products being offered by both sets the stage for an extended period of continued growth and appreciation of shareholder value.

Plug Power: Setting The Facts Straight

By The Wall Street Fox → Saturday, March 8, 2014

Last week proved to be Plug Power's (PLUG) most volatile trading week in history, having traded more shares than outstanding nearly every single day of the week. The company soared to multi-year highs of more than $11.50 early Tuesday morning, breaking multiple long-term resistance levels, before taking a 40% nosedive thanks to a short piece by Chinese Fraud connoisseur Andrew Left, of Citron Research. Left assigned a $0.50 price target on Plug Power by averaging out all of Plug Power's secondary offering prices. Valuations seem to be missing from Left's analysis on this resurgent fuel cell integrator, as his report solely focused on the past and bashed Plug Power, its management team, and Rob and Cowen analyst Rob Stone for previous performance, without taking into account the plethora of positive developments that have recently occurred for Plug Power and the fuel cell industry in general. Add five more bearish SeekingAlpha articles (four in one day) and a negative CNBC appearance by Andrew Left, and you're bound to see a drop in share price for this high-flying fuel cell company, as I called for in my last article.

Examining a company's past performance is the first step in identifying a viable investment, but previous performance does not equate to future performance, which is why it's necessary to heavily examine a company's future prospects when determining if said company is an appealing investment. Left's exclusion of Plug Power's recent positive developments and a sensational price target enabled the manipulation of share price in favor of his short position.

Following the release of Citron's Plug Power piece, Left appeared on CNBC and presented his bearish argument where he stated that Plug Power sells forklifts, and that their product offering is nothing different than the forklifts that have been around for the past 50 years. That's the first red flag, as Left fails to understand the business model behind Plug Power and the fact that the Latham, NY-based company has never sold a forklift in its existence. Even Left admitted during the interview, "It just doesn't make sense."

However, Left is not the only one who is having trouble understanding the business model behind Plug Power, as several recent bearish SeekingAlpha articles inaccurately described the operations of Plug Power, utilized questionable figures, and came off as misleading to prospective investors. Respected contributors Hugh Akston, Atlas Shrugged, and John Gilluly incorporated arguments into their recent write-ups that skewed the current image of Plug Power to one of doom, a true pump and dump scheme. Here is why Plug Power's resurgent return is warranted, sustainable, and just getting started.

Myth #1: Plug Power is a forklift company that sells forklifts (Citron, Gilluly)

Fact #1: Plug Power does not sell forklifts. Plug Power is a PEM fuel cell integrator. The company incorporates fuel cell stacks into GenDrive units that are sold to customers and then installed in forklifts, transportation refrigeration units (TRUs), ground support equipment ((GSE)), and range extenders for electric utility vehicles. Plug Power sources a portion of their fuel cell stacks from Ballard Power ((BLDP)), but the company will be sourcing their fuel cell stacks from other suppliers in 2014, and will begin to manufacture their own in 2015, in an attempt to reduce costs and diversify their suppliers.

Myth #2: Plug Power is utilizing the same business model since 2000. (Citron, Gilluly)

Fact #2: Plug Power does not utilize the same business model since 2000. Plug Power was misguided for nearly a decade as previous management (who have since been removed) dipped their feet in the automobile, telecom, and home generation fuel cell markets. Since current CEO Andy Marsh joined Plug Power in 2008, the company has shifted its business model to focus on the material handling market and other viable market opportunities, and has established an entirely new recurring revenue business model based around the installation, maintenance, and service of the hydrogen infrastructure required to operate fuel cell powered products.

Myth #3: Plug Power's recurring revenue is a farce and simply means multiple GenDrive unit orders from repeat customers. (Akston)

Fact #3: Plug Power has a recurring revenue stream that is based around its GenCare and GenFuel offering, not from selling its GenDrive units to repeat customers. GenCare and GenFuel contracts are usually a 5 year agreement that ensures Plug Power a recurring revenue stream from the installation of hydrogen infrastructure, the fueling of GenDrive units, and the servicing of said units. Plug Power has recently rebranded its entire offering to "GenKey" which is a turnkey solution for customers who want to convert their distribution center to fuel cells in a swift, painless process.

Here is an excerpt from Plug Power's December 4th, 2013 business update presentation.

Clearly, based off of the recent Wal-Mart (WMT) order announced in February, CEO Andy Marsh has delivered the goods and is keeping his promises. The Wal-Mart deal covers six sites, includes the deployment of 1738 GenDrive units (exceeding above range), GenFuel infrastructure construction and hydrogen supply, and a six-year extended GenCare service contract for each site (exceeding above range).

The value per site means this Wal-Mart deal is valued anywhere from $48 million to $72 million. According to Plug Power, the average price of a GenDrive unit is $20,000, representing $34.7 million in unit revenue. That leaves upwards of $13 million to $37 million in recurring revenue for one Wal-Mart deal. Andy Marsh commented that Plug Power set the deal up so Wal-Mart can easily add on more sites to the deal further down the road. Wal-Mart has more than 100 distribution centers in North America alone. Wal-Mart is just one of Plug Power's 24 Fortune 500 customers and represents a more than $1.5 billion opportunity for Plug Power alone.

Myth #4: Plug Power sports a market capitalization above the total addressable market in 2030 of its only commercialized product. (Atlas Shrugged)

Fact #4: While this statement was published when Plug Power was trading just below $12 and had a market capitalization of more than $1.5 billion, it still does not come close to breaching the total addressable market for the commercialized GenDrive units. The total addressable market for Plug Power's current GenDrive forklift unit is all lead acid battery forklifts deployed in the field. On a worldwide basis, there are more than 6 million forklifts in operation, and Plug Power's current customer base operates approximately 250,000 forklifts. The total addressable market for Plug Power's forklift customer base alone exceeds $5 billion. Plug Power plans on penetrating the global market through its current joint venture with Air Liquide and its soon to be announced joint venture with an Asian partner.

Myth #5: No insiders have been buying shares.

Fact #5: Many bears raise the question, why should you be buying shares if management isn't? While Citron notes that no insiders have participated in any of the recent secondary offerings, that doesn't mean insiders haven't been buying shares. During a telephone interview last January, Andy explained to me how he and his employees saw tremendous value in a company that was trading for nothing on Wall Street, and many loaded up on shares during the middle/end of 2013 (including himself). Andy purchased more than 100,000 shares during the summer of 2013 and has yet to sell his holdings.

Myth #6: Plug Power provides free service to Wal-Mart. (Akston)

Fact #6: In last week's earnings call Andy Marsh answered a question regarding Plug Power providing free service to Wal-Mart. Marsh stated:
We are receiving revenue for the service of the Wal-Mart deal, I've never talked to Andrew so I don't know where he got that information, but we are receiving payment for the product, the service, the hydrogen infrastructure, and the hydrogen fuel. And it's a separate deal, we had as I mentioned before, we already deployed more than 500+ units with Wal-Mart this is a brand new order, a brand new opportunity, they're paying for everything, and they're paying at fair value market price for the product, and it's over 1700 units.
It should be noted that findings stemmed from Akston's unidentified Plug Power customer source has been wrong in the past. In a previous article, Akston claimed a reliable customer source indicated that Plug Power's fuel cell offering provided no material benefit over lead acid batteries, and that Plug Power was misleading investors and customers with GenDrive's posted run rate. Andy Marsh directly dispelled this rumor shortly after it was brought up, and Akston has since backtracked and stated in his recent write up, "There is no doubt that fuel cells work."

Myth #7: Plug Power has no unique technology (Citron, Akston).

Fact #7: Plug Power has 159 patent granted patents and 39 patent applications. This paragraph has been quoted by Citron and Akston from Plug Power's 10-K:
We believe that neither we nor our competitors can achieve a significant proprietary position on the basic technologies currently used in PEM fuel cell systems. However, we believe the design and integration of our system and system components, as well as some of the low-cost manufacturing processes that we have developed, are intellectual property that can be protected.
However, this is typical patent jargon that outlines the general risks surrounding intellectual property to investors. What Citron and Akston fail to include is the writing that directly follows the above paragraph:
Our intellectual property portfolio covers among other things: fuel cell components that reduce manufacturing part count; fuel cell system designs that lend themselves to mass manufacturing; improvements to fuel cell system efficiency, reliability and system life; and control strategies, such as added safety protections and operation under extreme conditions. In general, our employees are party to agreements providing that all inventions, whether patented or not, made or conceived while being our employee, which are related to or result from work or research that we perform, will remain our sole and exclusive property. 
During 2012, the U.S. Patent and Trademark Office, or USPTO, issued two new patents to us and we have a total of 159 issued patents currently active with the USPTO. At the close of 2012, we had approximately 9 U.S. patent applications pending. The number of pending patent applications decreased in 2012 relative to 2011. Additionally, we have six trademarks registered with the USPTO.
Clearly there is a heavy bias among the shorts.

It should be noted that after receiving a tour of the manufacturing facilities of Plug Power, the technology installed is extensive. Andrew Left claims Plug Power simply takes a fuel cell from Ballard Power, wraps it in a box and gives it to customers, but the mechanics behind GenDrive units are extensive and complex, and no company can simply set up a massive fuel cell integrating operation like Plug Power has overnight.

Myth #8: Customers of Plug Power are solely adopting their product offering for tax incentives and will stop doing so once the incentives expire in 2016.

Fact #8: Plug Power customers actually see value in Plug Power's fuel cell product offering due to the 15% increase in productivity and cost reductions associated with Plug's product offering. Plug Power skeptics should be reminded that European customers that do not receive tax incentives utilize Plug Power's forklift offering and the company has gotten a massive number of requests to provide their products to customers in other regions of the world.

Andy commented about the tax credits:
About 70% of our customers leverage the ITC in the US today. We mentioned we have two sites with Wal-Mart, sites with Ikea in France, sites with BMW in Germany who do not have access to the ITC. 
We've always ran this business assuming that it would go away and we've been dramatically reducing our product cost. I think the people are going to be surprised from the fourth quarter where we are with product cost but we see our product cost declining 10% to 12% per year and we'll be in a very strong position when the ITC is done. It's one of the reasons quite frankly; we're doing our own stack development at the moment because it can help us reduce the cost.
Also, keep in mind that Wal-Mart's recently signed six year contract extends four years beyond the 2016 ITC expiration date. Wal-Mart is committed to Plug Power's product offering.

Myth #9: Plug Power operates a small facility. After reaching out to John Gilluly, he informed me that he calculated Plug Power's manufacturing facility to measure 5,000 square feet based off of satellite images. (Gilluly)

Fact #9: Plug Power operates a 150,000 square foot facility in upstate Latham, NY. After visiting the facilities I can say myself, Plug Power operates a large manufacturing facility that dwarfs 5,000 square feet.

Myth #10: Plug Power is a casino stock

Opinion: Plug Power is a viable long-term investment that is poised to experience rapid growth as it deploys its fuel cell integrated products on a large scale to a base of tested customers. Expansion into vertical markets, international joint ventures, and new customer sign ups will help Plug Power prove to the critics that this time it's different.

What You Need To Know And Why I'm More Bullish Than Ever

GenDrive units for forklifts are just the beginning. Plug Power is beginning to deploy its PEM integrated fuel cell products in a number of other markets that can potentially dwarf the market opportunity of Plug Power's current GenDrive offering. By the end of 2014, Plug Power will deploy fuel cell integrated Transportation Refrigeration Units (TRUs), Ground Support Equipment, and Range Extenders, with FedEx as the leading customer for GSEs and Range Extenders. During the 26th annual ROTH conference last week, Andy Marsh estimated that the TRU market represents a $10 to $15 billion opportunity, while the GSE market represents a reasonable opportunity of $50 $60 million annual revenue. While Marsh did not give a number for the potential Range Extender market, he estimated that it could easily dwarf the market size of its current material handling forklift fuel cell product.

Plug Power plans to assume majority ownership of its European Hypulsion joint venture in the future.

Plug Power's estimated current annual revenue capacity has increased from $200 to $250 million, which does not include revenues incurred from the GenCare or GenFuel services.

Plug Power has signed up a new large automobile customer and plans to release details on the name and the order size in the near future. Andy commented during the recent conference call:
When I announce the name people are just going to shake their head and say yea these are guys who wouldn't do it unless it really made sense and when you can convince somebody like we convinced to turn their system over to us as a turnkey deal I think it says a lot about the company.
Welcome To Plug Power

Plug Power is indeed a volatile stock and has resembled a roller coaster ride for everyone involved. But don't confuse this with "market mania." The dramatic price appreciation in Plug Power has been warranted, and the stock will continue to move higher on positive developments from the company and sound business execution. The longs that rolled the dice and purchased shares with an impending reverse split pre-December 2013 were heavily rewarded with 1500%+ gains, and as more institutions begin to enter the stock, it is clear that Plug Power is attracting serious investors who foresee an era of fascinating growth.

Anyone who would like to read further on why Plug Power has dramatically risen in share price and has managed to sustain its gains and attract investors, should read any of my previous articles on Plug Power and these posts by Michael Bigger:
  • Plug Power Cracks The Hydrogen Code
  • Plug Power: How Big Can It Become?

Plug Power is a volatile stock and there is plenty of money to be made on both sides of the trade. Plug Power was running on momentum and bound to fall from its highs of $11.50+ regardless of all the short reports that were recently released, but while the dust settles and consolidation ensues, prospective long-term investors should keep a close eye on shares if looking for an entry point. Plug Power is still in a clear uptrend and the recent equity financing at $5.75 provides a strong psychological level of support that would provide an opportune entry point if reached.

Shares of Plug Power should put in a solid base and continue to consolidate around current levels and the recent $5.75 share price offering should serve as a support level and may be tested once more. With impending news regarding a new auto customer, an Asian joint venture, and more bookings of products from repeat and new customers, Plug Power is poised to continue its growth in both business and share price. The upcoming April business update may be the catalyst that induces shares to rally once again.

Plug Power: Inside The Belly Of The Beast

By The Wall Street Fox → Tuesday, March 4, 2014

Shares of Plug Power (PLUG) have been in beast mode ever since CEO Andy Marsh held a business update on December 4th and announced a blowout fourth quarter, which boosted the share price and allowed the company to avoid a highly feared reverse stock split. Shares have generated a staggering three-month return of nearly 500%, and the stock just smashed through previously made multi-year highs. The rapid appreciation of Plug Power's value is warranted, and though many critics voiced their cautious opinion, almost all have been subdued. The premier fuel cell integrating company that was infamous for destroying shareholder value for more than a decade is not as small as many think, and after a tour of Plug Power's manufacturing facilities in Latham, NY, on February 28th, 2014, I walked away with both a comforting feeling of adding even more shares to my long-term position, and a sense of excitement for what lies ahead in the not so distant future. Below is a brief takeaway from my tour of Plug Power.

It's imperative that investors understand the history of every company they are invested in, and how (and why) said company is where it is today. Plug Power is no different, and the sporadic history of this fuel cell integrator has taken the company all over the map. Plug Power has integrated fuel cells into products for the home generation industry, the automobile industry, the telecom industry, and more, without picking up any serious traction. Plug Power was aimlessly driving around for more than a decade with no clear direction, blindly throwing darts at the board, until CEO Andy Marsh took the reins in 2008.

Marsh began talking to Plug Power's customers, examining what worked and what didn't work, and came to the conclusion that it made sense for Plug Power to pursue its line of products focused on the material handling market. Forklifts have become the primary focus for Plug Power, but after resembling a R&D powerhouse for nearly five years, Plug Power is ready to provide a compelling value proposition for businesses engaged with equipment in the material handling, TRUs, GSEs, and range extender markets, representing a conservative estimated combined market opportunity of tens of billions of dollars (not including GenKey offering).

Add the facts that Plug Power is expected to gain exposure to the Asian market through a joint venture later this year, is in the midst of testing a fleet of FedEx (FDX) vehicles equipped with range extenders, will be deploying Ground Support Equipment ((GSE)) vehicles for FedEx in 2014, and has been testing Transportation Refrigeration Units ((TRU)) with Sysco since last year, and it's clear that Plug Power has finally found a destination on its map that enables a straight path to profitability and allows for a considerable amount of shareholder wealth yet to be created.

The mounting anticipation of touring Plug Power's manufacturing, testing and laboratory spaces just outside of Albany, NY made the three-hour drive from Ithaca, NY fly by. Teal Vivacqua, Director of Plug Power's Marketing Communications, greeted me upon arrival, walked me to the facilities and introduced me to Daniel Connelly, Production Manager at Plug Power. Both accompanied me on the facility tour, detailing the production facility, the internal components and mechanics of a typical GenDrive unit, the assembly of said product, and more.

Inside a GenDrive unit. Teal pointed out that many of the parts in a GenDrive unit are ordinary parts that can be found in a car (besides fuel cell stack of course).

The sheer infrastructure and technology integrated into Plug Power's manufacturing facilities illustrated a crystal clear image that an immense amount of time and resources have been invested into the space, and a setup like this can't be built overnight. Plug Power is the number one fuel cell integrator in the world and the barriers to entry are high.

Massive metal casings hold the GenDrives in place. The weight of the casing is necessary to counterbalance the small weight of a GenDrive unit, that way the forklift has leverage when moving heavy materials.

When asking about capacity constraints, Teal commented that the current manufacturing facility is able to produce up to 10,000 units per year, representing more than $200 million in annual revenue. This revenue figure does not include the recurring revenues that will be generated from Plug Power's rebranded GenKey solutions.

With Wal-Mart's (WMT) recent order for more than 1700 units over a two-year period, and shipping for said units beginning in Q2 of 2014, Daniel Connelly commented that Plug Power is gearing up for a historic quarter that will be its busiest yet, and they're ready for it. The only expansion that Plug Power currently needs to undergo is its workforce, as shown here by a steady ramp in job postings. Plug Power employs approximately 150 people in Latham, and has an outside sales force consisting of more than 60 employees.

Approximately 15 GenDrive units sit on wooden pallets as they await shipping.

The smooth workflow of Plug Power's operations reminded me of my first ever factory tour of the John Deere facility in Manheim, Germany, and I sensed many similarities between the two. In no way am I inferring that Plug Power's facilities matched the sheer size or technology of John Deere's flagship production facility. However, there was a true sense of cohesiveness among the workers, production layout, and product divisions when I walked through Plug Power's production floors, and this lends credibility to the notion that Plug Power seems more than capable to execute its strong list of business prospects and keep up with the extraordinary growth the company is currently experiencing.

Transportation of GenDrive unit mid-assembly.

Plug Power has the integration of fuel cells and the production of GenDrive units down to a tee. The quality and durability of said products are impeccable, and Connelly, who has been at Plug Power for over a decade, commented that the company just received one of their old home generation units for servicing after more than 11 years of continuous use; talk about a satisfied customer. Anecdotes were told of an average day in the life of a GenDrive unit out in California at a Kroger store. The fuel cell equipped forklifts are constantly running into sub zero freezers, and immediately back out into the sweltering California heat, all without any hiccups. Extra humid, extra dry, freezing temperatures, sweltering heat, Plug Power's GenDrive units can withstand the elements no problem.

I learned a number of things from Daniel Connelly and Teal Vivacqua about the value proposition and production facilities of Plug Power, and here are three that especially struck a note with me.
  • For every one GenDrive unit, there is on average three battery units for a forklift. Electric forklifts powered by massive batteries (some weigh as heavy as a washer machine) tend to have one installed in the forklift, one sitting on the charging station, and another cooling down after an extended period of use. Because GenDrives can be instantly filled with fuel and forego the long and tedious process of battery charging, only one unit is necessary for each forklift, and the backbreaking process of swapping out heavy batteries is eliminated. From an operational viewpoint, the GenDrive value proposition is through the roof, leading to increased productivity and measurable sustainability impacts.
  • The average life cycle of a GenDrive unit is five years (crushes battery standards), and facilities that are running 24/7 eat into that time even more. What this means is customers who committed to Plug Power's product offering are going to stay committed, especially with an installed hydrogen infrastructure. I would expect that once Plug Power begins to receive more milestone orders from other Fortune 500 companies similar to the recent Wal-Mart order, the company should begin to build a constant stream of producing and shipping replacement units for models that were established under previous orders. In other words, the 1700+ units ordered by Wal-Mart should equate to another 1700+ unit Wal-Mart order five to six years from now to replace the recent order.
  • Innovation, research and development are still ongoing at Plug power. The company recently innovated its GenDrive 3300 unit, the smallest of the three GenDrive offerings. The GenDrive 3300 is now a 100% air-cooled system that eliminates all of the pumps and coolant loops associated with liquid-cooled systems. A 30%-40% reduction in parts compared to a more complex system allows for simpler system maintenance. As Plug Power begins to enter new markets, it is clear that innovation is ongoing at Plug Power, which will help create a sustainable business operation for years to come.

Plug Power's staggering price appreciation is filled with momentum, but with a highly anticipated announcement regarding a joint venture based in Asia, and the inevitable news of receiving more orders from current (and new) customers, the momentum behind Plug Power shouldn't drop off anytime soon. Wal-Mart and their ~160 North American distribution centers alone represents a more than $1 billion opportunity (not including GenKey) for Plug Power. If you consider Plug Power's customer base of ~25 fortune 500 companies, the continued commitments from Wal-Mart, Kroger and FedEx, a progressing and promising GenKey business, and the vertical markets Plug Power is looking to enter later this year, the dramatic price action behind Plug Power is more than warranted.

Source: StockCharts

Plug Power is a small cap company that is subject to risks associated with said companies. To call this stock volatile would be a gross understatement. As I write this piece, Plug Power is churning more than 20% higher on no material news (besides a small analyst note), and this isn't the first time this has happened. At levels breaching $6.00, Plug Power is surely subject to profit taking which may depress the price action in the short term.

Investors should keep in mind that there is an ever growing hype behind the fuel cell industry, as there was in the early 2000s when Plug Power first debuted as a public company and rose to a valuation of more than $8 billion. With renewed commitments to fuel cell technologies from Sprint, Honda, Toyota, Hyundai and more, a continued (and heightened) hype that engulfs this emerging technology can potentially propel shares of Plug Power even higher.

Investors who want to gain exposure to Plug Power should be long-term oriented and fully understand the value proposition (and risks) at hand. For the risk averse investor who is looking to gain exposure to Plug Power and the emerging fuel cell industry in general, it would be wise to wait for the March 13th FY 2013 earnings release before initiating a position, as any lackluster numbers can trigger a selloff by day-traders and other weak holders who are not in it for the long run. Any dip under $5 should be heavily exploited by long-term investors and viewed as a buying opportunity.