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.
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.
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.
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.