NEW YORK (TheStreet) -- Alternative energy forklift supplier Plug Power (PLUG) raised the stakes for obsessed short sellers after announcing its intention to acquire ReliOn Inc., a developer of hydrogen fuel cell stacks. The press release sent shares higher in pre-market trading on Thursday and they are now trading around $7.50, up over 385% for the year to date.
According to the press release, the acquisition furthers the company's in-house technology development, an area considered weak and highlighted by short-sellers. ReliOn is a privately held company partly owned by Cummins (CMI) and Avista (AVA). As a result, it's difficult to discern ReliOn's financial performance.
Plug Power said it expects $1 million in the income statement expenses in 2014, and ReliOn will become accretive to earnings as soon as 2015. Short-sellers are quick to point out Plug Power's past predictions often fall short.
Short-selling is when an investor borrows stock they do not own and sells it. They then buy shares to return the shares they borrowed. Short-sellers profit if shares decline in value between the sale and purchase. They're considered the "smart money" on Wall Street because the practice is usually performed by sophisticated and well-funded investors.
Short interest is critical to track because when a lot of smart money believes a stock is overvalued relative to the underlying company, they usually call it correctly. But not always. When their bets are wrong they can get caught in what's known as a short squeeze. As a stock price rises and gains attraction, shorts lose ever increasing amounts of money.Often, shorts become their own worst enemy, driving a stock price higher because they are forced to buy because they reached their maximum loss. A notable example is Tesla Motors (TSLA). Tesla and Plug Power may not have reached operational profitability yet (as short-sellers are quick to point out), but don't tell that to shareholders getting rich. Before Tesla rocketed above $40, over 20 million shares were shorted. As of the last report in March, over 28 million shares remain short even with the stock trading above $230. It's doubtful many of last year's shorts remain in their position at the same cost basis.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV