PLUG – Plug Power Stock a Sell Even on Good Earnings

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Anyone who follows Plug Power (PLUG) won’t be surprised that PLUG stock managed to fall nearly 10% right after Wednesday’s opening bell. Wild swings are what Plug Power is known for, and there are sure to be many more — probably to the downside — ahead.

There are always a few stocks that a portion of the market falls head-over-heels in love with, despite investors’ better judgment. Take look at what PLUG stock has done over the last 12 months, and it’s abundantly clear some players are blinded by their ardor.

True, Plug Power is one of the few ways for investors to bet on the exciting and revolutionary technology of electricity-generating fuel cells. But since when does it make sense for shares in a company that helps power fork lifts to rise more than 1,400% in a year?

Just as worrisome is the epic volatility seen in Plug Power stock. Indeed, PLUG stock has traded in a range of 22 cents to $11.72 in the last year alone. Sure, Plug Power stock still is up more than 140% for the year-to-date, but it’s also off 64% since its March 10 high. Have a look at the chart:

How does anyone figure an entry and exit point in a stock like that — especially one as neurotic as Plug Power stock?

Plug Power Stock Short Circuits on Earnings

The latest sell0ff in PLUG was set in motion by disappointing quarterly earnings. Plug Power reported a wider net loss year-over-year, to $75.9 million, or 57 cents a share, from $8.6 million, or 18 cents, in 2013. Yes, much of that stemmed from a charge of $68.4 million for stock warrants, but even on an adjusted basis, PLUG missed analysts’ estimate. Plug Power had an adjusted loss of 6 cents when Wall Street was looking for a loss of 5 cents.

Then again, missing by a penny a share is hardly a tragedy. Furthermore, although revenue declined to $5.6 million from $6.4 million, the top line comfortably exceeded Street estimates. That might be a disappointing quarter for PLUG, but it wasn’t so bad that the stock needed to be shellacked.

However, PLUG took a bad beating because that’s what happens to momentum stocks with insanely high valuations when anything negative comes to light.

Even after Wednesday’s selloff, Plug Power stock was luxuriously expensive, with a nosebleed forward price-to-earnings ratio (P/E) of 77. For comparison, the S&P 500 trades at 16 times forward earnings. Heck, even Netflix (NFLX) — a poster child for pricey momentum stocks — has a P/E of just 50.

That’s not to say that PLUG doesn’t have a solid business or a great future. It very well may. Walmart (WMT), the world’s largest retailer, uses fuel-cell-powered forklifts aided by Plug Power’s systems.

At an investor conference this week, PLUG said it will deliver more than 3,000 units this year and will end 2014 with a profit, excluding interest, taxes and depreciation. That’s nothing but good news for PLUG.

It does not, however, make Plug Power stock a buy.

Like fellow fuel-cell stocks Ballard Power Systems (BLDP) and FuelCell Energy (FCEL), PLUG stock trades wildly from headline to headline. The volatility alone makes Plug Power too risky because it’s far too easy to buy high.

If anything, Plug Power stock is a sell if you’re sitting on gains. Momentum stocks don’t stand a chance in this market, especially if they carry a 1,400% gain over the last year.

PLUG stock offers too many reasons to get out, and there looks to be plenty more selling ahead.

That’s why it’s time to pull the plug.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.