What to Do With Volatile Plug Power Shares

NEW YORK (TheStreet) -- Shares of fuel-cell-powered forklift maker Plug Power (PLUG) have pulverized shareholders since I wrote my first warning that the stock was becoming overheated.

The stock's ride from less than 20 cents in 2013 to over $11 in March was a remarkable run, but between a bearish report from Citron Research and my above-mentioned article on March 11, reality returned to the market.

Momentum day traders realized the music stopped without enough chairs for everyone. Unsurprisingly, when the tide turned, the mob was as emotional on the way down as it was going up.

PLUG Chart

When the stock tumbled, I advised investors to take a step back and try to remove emotion from their investing decisions. I can't stress this enough -- if you're going to be successful in the long run, you need to have an plan to sell that includes TWO exits. One is your profit target and one is your stop loss.

Meanwhile, Plug Power's secondary offering last month should help stabilize the stock. The offering of 22.6 million shares at $5.50 each (before overallotment to underwriters) raised $124 million, giving the company a war chest to work with, but I wonder if Plug Power really needs the money or if management sold more shares out of habit.

PLUG Shares Outstanding Chart

The chart above illustrates a rather curious pattern. CEO Andrew Marsh may have missed his calling. He appears more apt at selling stock than forklift fuelcells. I don't recall the last time (if ever) I've seen a company with a $1 billion market capitalization inflate its share count by a factor of 10.

Well. actually, Plug Power's billion-dollar market cap slipped away when the shares fell below $7. It's unlikely that the stock will trade above $7 tomorrow.

The upside is it's equally unlikely that the stock will fall below $1 anytime soon. The company should have at least a dollar per share in cash alone. Maybe that's the point -- have a sufficient buffer to avoid violating the Nasdaq's minimum share price requirement.

But based on Marsh's comments during an earnings conference call in March, the company is executing on its plans to break even on an Ebitda (earnings before interest, taxes, depreciation and amortization) basis this year.

Furthermore, shouldn't Plug Power's increased order flow take care of cash-flow issues? And if capital is needed for acquisitions and or expansion, why not issue bonds or borrow the money or both?

Even Apple (AAPL) is borrowing money just to buy shares because loan rates are so cheap. Obviously Apple can borrow at more favorable rates than Plug Power, but the relative concept is the same. Why would anyone with a choice issue a secondary offering with interest rates so low? Maybe Plug Power doesn't have a choice.

PLUG Free Cash Flow Per Share (Quarterly) Chart

After calculating warrants, employee options, convertible preferred stock, restricted stock and the latest underwriting options, the shares outstanding could approach 200 million. Talk about dilution. Wow.

If Plug Power doesn't demonstrate a clear path to operational profitability when it reports second-quarter earnings on May 14, the easiest path is lower.

Also, if shareholders become spooked that another offering is needed, expect the price to get cut in half once again.

In the meantime, you may want to consider taking some profits off the table. If the earnings report is good, the shares will move slightly higher, but if the company guides at a trajectory of anything less than stellar, it's going to be ugly.

At the time of publication, Weinstein had no positions in securities mentioned.

Follow @RobertWeinstein

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

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