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Is Plug Power Built on Rock or Sand?

John Licata

05/06/14 - 12:13 PM EDT

NEW YORK (TheStreet) -- Downside in the fuel-cell provider Plug Power (PLUG) has been fast and fierce, but selling could find limitations technically with major support seen at $3.75. At nearly $4, shares are up over 157% for the year to date.

Considering the recent "Down Goes Frazier" 47% fall in recent sessions, shares of PLUG could bounce hard as value investors once again focus on growth opportunities (i.e. stationary power, electric vehicles, stacked development, etc.), expanding relationships with Walmart (WMT),  FedEx (FDX) and Kroger (KR) the fact the company's last quarter earnings report was a complete blowout. That last point may cause short-sellers, a group representing about 23% of the float according to Nasdaq data from April 15, to cover their positions.

I hate to say it because I like the co. but technically shares of fuel-cell play $PLUG could dive below $4 before major support is seen. John Licata (@bluephoenixinc) April 25, 2014

For those willing to trade the expected volatility, the company next reports first-quarter 2014 earnings on May 14. Hopefully, management doesn't have too much diarrehea of the mouth and overhype. Rather, it needs to act like it has been in the endzone before. It needs to say something new and fresh when the company report earnings.

I would also like to hear management address the recent move by rival ClearEdge Power to file for bankruptcy, something that spooked shareholders of PLUG and even Ballard Power Systems (BLDP).

PLUG needs to grow margins and simply alleviate concerns about funding. I would have loved to see the company shelve its secondary offering of 22.6 million shares at $5.50 but alas that didn't happen. At the same time, if PLUG does, in fact, need to raise more cash to fund growth, I'd much rather see it capitalize on lower interest rates versus further diluting shareholders by issuing more stock.

As stated on its April Business Update, PLUG currently has roughly $80 million in bookings. Therefore, it is more than halfway to its goal of $150 million in bookings for all of 2014. That's great, but the company's credibility is still under attack since PLUG mentioned during the eighth minute of the April Update it has a new GenKey customer in Volkswagen. However, the German auto maker has apparently denied it was working with PLUG.

Things that make you go hmm...

PLUG's management continues to talk about dramatically boosting revenue in 2014 and expanding into Asia through an alliance (non-binding MOU) with Hyundai Hysco, a supplier to Hyundai Motor. Shareholders will want to learn more details about that new relationship and how PLUG plans to grow globally. At the same time, the company needs to boost its sales force in order to keep up with rapid expansion. That should cause SG&A to ramp up in coming quarters.  

At the end of the day, management needs to show Wall Street this company is built on rock, not sand. If they can, shares of PLUG will power portfolios again. Keep in mind CEO Andy Marsh has stated emphatically his company will break even on earnings before interest, taxes, depreciation and amortization in 2014, so he must deliver on that or the recent stock selloff will be even more tumultuous.

John Licata, Chief Energy Strategist of Blue Phoenix, does not own shares in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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