March 20, 2012
Recommendation: Strong Sell
Welcome to the Stock of the Day for March 20, 2012. Nowadays, it takes a lot more than just the Energizer Bunny to power our 21st Century technology. Today, I'll be analyzing Plug Power Inc. (PLUG), a mid-sized company that specializes in fuel cells—a power source that is ripped from the pages of science fiction.
Company Overview: Plug Power Inc. specializes in providing alternative energy sources to power forklifts. Specifically, the company's hydrogen-powered fuel cells serve as a more environmentally friendly and energy-efficient alternative to conventional lead-acid batteries. It sounds like a niche service, but the material handling market is still a $20 billion market worldwide. The company started as a joint venture in 1997; since then the company has deployed over 2,000 products to Fortune 500 companies like Walmart and BMW.
Earnings Buzz: The company released fourth-quarter earnings at the beginning of March, and although management was optimistic about the fuel cell industry, the operating results were still pretty lackluster. Compared with the same quarter last year, the company managed to narrow its loss from $8.6 million (-$0.65 per share) to $7.2 million (-$0.32 per share). However, analysts forecast that the company would reduce its loss to $0.22 per share, so Plug Power posted a 46% earnings miss. Over the same period, sales did jump 92% to $11.6 million. It's good to see sales on the uptick, but all-in-all, this earnings announcement wasn't strong enough to push this stock out of sell territory.
Industry Breakdown: There are 123 companies in the Diversified Electronics industry, and Plug Power scores towards the middle in terms of most fundamental metrics. With a market cap of $40.3 million, Plug Power is the 72nd largest company in the industry. Its sales growth is 68th in the industry, and its return on equity (-76.3%) is towards the bottom of the pack at 90th. The one metric that Plug Power performs decently in is its long-term growth rate, which is 36th in the industry. This company's main competitors are Arotech Corp. (ARTX), Avista Corp. (AVA) and Ballard Power Systems Inc. (BLDP). Of these four companies, Plug Power's sales growth comes out on top, but it falls far below its competitors in terms of gross margin and operating margin.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past several months, this stock hasn't been able to break into "buy" territory. In fact, in 2012 the stock was downgraded all the way to "strong sell" status. That's partially because the company is struggling financially, particularly in terms of cash flow, return on equity and sales growth. In fact, the company's only area of financial strength is its track record of analyst earnings revisions. Meanwhile, buying pressure for this stock could hardly go any lower. This is an F-rated stock.
Bottom Line: I strongly suggest that you avoid this stock until the company can firm up its fundamentals.