Plug Power Inc. (Nasdaq: PLUG) came into earnings season with a chip on its shoulder.
The hydrogen fuel cell vendor has been all but cast aside by Wall Street after a hype-driven run took PLUG stock up 560% to begin 2014, only for it to crash on the words of a short-selling firm.
It's down more than 75% since it hit an intraday high of $11.72 on March 11, 2014.
So, why is the PLUG stock price down so much?
The PLUG bears have consistently echoed what has now become the tired mantra of "overpromising, under-delivering." Surely, this was a problem that plagued PLUG stock for most of 2014.
As Citron Research pointed out amid last year's bull run, CEO Andy Marsh repeatedly missed rather lofty projections on a consistent basis. He even missed his 2014 revenue projection of $70 million when Plug Power posted a $64.2 million figure.
That has soured some investors. Plug Power can talk about its $100 million revenue projections for 2015 - and its $500 million projection for 2020 - all it wants, but how can Marsh disentangle his brand name from a legacy of broken promises? And how can PLUG stock ever get the Wall Street bulls back on board again?
The problem with the bear case for PLUG stock right now is that at the center of it is an unreliable short attack.
Citron Research's report was suspect from the beginning.
As it reads: "Who is behind PLUG, and what do they do? This is simple: Plug Power sells fuel cell-powered forklifts...with fuel cells they acquire from Ballard Power. Nothing fancy here, folks. Same business model since the 2000 crash."
If the current case against PLUG stock is built on this sloppy logic, then the bull case is much stronger.
These criticisms are either entirely untrue, misleading, or irrelevant with where Plug Power is now.
Most notably, Plug Power doesn't sell hydrogen fuel cell-powered forklifts. They sell hydrogen fuel cells and are the first commercially viable company to do so. And it's not just that.
In early 2014, Marsh consolidated the business model to offer the GenKey solution. This includes the GenDrive fuel cells, GenFuel - the hydrogen refueling stations - and GenCare - the customer care and maintenance service - all at once. This was at the behest of one of its blockbuster clients - Wal-Mart Stores Inc. (NYSE: WMT), a client that in and of itself is extraordinarily game-changing for the industry.
"Wal-Mart was validating the fuel cell productivity solution...Wal-Mart is a standard in terms of logistics excellence," Michael Bigger, founder of Bigger Capital, told Money Morning, adding that with Wal-Mart's endorsement, more corporate clients are soon to follow.
Furthermore, Plug no longer has the same relationship it once had with Ballard Power Systems Inc. (Nasdaq: BLDP), the company the report mentions.
Plug's acquisition of fuel cell stack developer ReliOn in April 2014 has effectively weakened that relationship.
And perhaps the most outrageous of Citron's assertions is that Plug Power is the same company it was in 2000, which couldn't be further from the truth.
Here's what Plug Power is now...
What Does PLUG Stock Have to Offer?
In 2000, Plug Power was primarily a research and development company eyeing hydrogen infrastructure. It was, at that point, a highly speculative play on a very immature industry, and a penny stock valuation was much more appropriate.
When Marsh stepped in as CEO in 2008, he began changing the face of Plug Power dramatically. He shifted focus to material handling and delivering hydrogen fuel cells for forklifts.
Plug Power already had an existing relationship with Wal-Mart, and Citron Research pointed this out in an attempt to dispel any of the optimism that grew out of the announcement in early 2014 that Wal-Mart was adding more of Plug Power's products to its distribution centers.
But it wasn't that Plug Power netted Wal-Mart that was impressive. It was that Marsh heeded a call from Wal-Mart to deliver a turnkey hydrogen solution - one that combined the fuel cells, the refueling stations, and the servicing of those hydrogen products - and reinvented the business entirely.
Plug Power has several more customers giving hydrogen a try. Plug Power currently lists 32 customers using its hydrogen products in distribution centers at 58 sites on its website. And that's only what Plug Power lists.
"I wouldn't be surprised if there's a bunch of customers that we don't know about," Bigger said. "That's just the nature of the beast. Many public companies don't announce their customers and that's understandable... It may be marketing, it might be they won't to control the PR, it might be they don't want to disclose strategic initiatives or something like that."
For example, Plug lists a "Big Box Retailer" on its website. Marsh slipped up in the first quarter earnings call and revealed that it's Home Depot Inc. (NYSE: HD), a huge name in material handling that if allowed to more appropriately go public, could probably catch Wall Street's eyes.
But Plug Power doesn't control its PR, and Marsh has made it clear that he's going to respect his customers, who will reveal as much or as little as they want about their use of Plug Power products.
There are also rumors that Plug Power has netted Nike Inc. (NYSE: NKE).
You see, these companies don't want to go on line with hydrogen solutions only to have them flop.
Furthermore, the current European expansion may not deliver short-term revenue growth, but it is happening nonetheless.
Plug Power has German-based Volkswagen SP (OTCMKTS ADR: VLKAY) as a U.S. client, and success with the hydrogen solution could portend a larger European roll out. That, and Plug recently taking full control of its joint venture with Axane SA - by fully acquiring Hypulsion - will help Plug Power more easily tap into Europe's $20 billion forklift market.
So, why is PLUG stock having so much trouble going on a run despite a pretty solid base of customers and a growing business?
What's Keeping PLUG Stock Down?
There's little Plug Power can do at this point to make its success clear to the lay investor. It doesn't control the PR, so it can't make cheery announcements that will give it a jolt.
All it can do is try to realize success in its earnings.
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And that's the biggest problem...
If Citron Research was right about one thing, it is that Plug Power does have a legacy of poor earnings, however irrelevant that may be to the Plug Power of today.
From 1997 to 2014, Plug Power had generated $938.5 million in losses and a $16.34 loss per share on a total of $305.1 million in revenue. Far short of making $500 million in 2020, if Plug Power was still on this trajectory, it would have probably closed up shop by now.
But as was already mentioned, the 2015 Plug Power is not the 1997 Plug Power. It's not even the 2013 Plug Power. Its revenue growth has been pretty impressive. In 2014, sales grew 141% from $26.6 million to $64.2 million.
Marsh has overpromised and under-delivered as his critics have pointed out, but Marsh isn't a financial wizard, and he's taken steps to temper his wild expectations with the hire of Paul Middleton as CFO last November.
The new CFO "has really taken the baton out of Marsh's hand in terms of forecasting and coming out with financial expectations," Matt Margolis, chief research analyst at Wall Street Forensics, told Money Morning.
Marsh has had to suffer the consequences of his big mouth and has learned. The most recent PLUG earnings revealed a record in sales for Plug Power at $24 million. Margins are increasing. And the promises of being EBITDA positive in the fourth quarter may not be as outrageous as they once seemed.
PLUG earnings failed to impress and Wall Street punished the stock early, sending it down as much as 15% in the early afternoon. But this company is much more than something you should be playing for a short-term pop.
"It's not a thing for short-term trading," Bigger said. "It's going to be a frustrating experience, especially if you want profit on a quarterly basis."
Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.
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