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Don’t Buy Plug Power Stock Based on Nikola Enthusiasm

Plug Power (NASDAQ:PLUG) stock is on a roll. Shares hit new 52-week highs this week as PLUG stock topped the $12 mark. The stock is up as much as 500% since this time last year.

Image of a man driving a forklift in a warehouse.
Image of a man driving a forklift in a warehouse.

Source: Halfpoint/ShutterStock.com

What explains the incredible run? There are a confluence of favorable developments.

Plug Power has grown revenues dramatically in recent years. The company has used that momentum to raise capital on solid terms; it brought in $200 million from a bond issuance, and is now looking to add more than $300 million on top of that in a recently announced stock offering. The industry buzz certainly helps as well. Electric vehicle makers are hot, and hydrogen in particular is attracting tons of attention in the clean-tech arena.

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So should investors buy into the Plug Power story? There are a few cautionary notes that should at least give you pause. For one, the revenue growth is uneven, as the majority of the company’s sales go to just two customers. Any disruption there would be problematic. Additionally, while Plug Power now has plenty of cash for the time being, it’s still unclear if Plug Power will be able to start generating meaningful cash on its own, rather than relying on stock offerings. And the hydrogen boom may not help Plug Power as much as investors are expecting, either.

Insiders Are Selling

One interesting question is why insiders are so negative on PLUG stock. The last time any Plug Power insider bought stock was back in March 2019 at $2.34 per share. Since that well-timed buy, no other Plug Power insiders have purchased stock in the company.

On the other hand, there has been no shortage of sellers. Since that March 2019 purchase, there have been nearly three dozen transactions where insiders have sold off stock. And sure, most of that is related to option exercises. Still, it’s worth asking why insiders were so quick to cash out their options at much lower prices, like $4 and $5 per share, than the stock trades for now.

If Plug Power’s turnaround is actually going to work — unlike many past false starts with this company — you might expect management to be optimistic. Instead, they’re rapidly selling off shares. CFO Paul Middleton just sold another 550,000 shares, for example, earlier this month.

It could be a wise idea to follow this lead.

Don’t Count on a Nikola Partnership

The success of hydrogen electric vehicle company Nikola (NASDAQ:NKLA) has certainly cast Plug Power in a positive light as well. Nikola is bringing the fight to Tesla (NASDAQ:TSLA) in the EV space, and that seems like a big positive for Plug and its hydrogen fuel cells. And there may be some knock-on effect from hydrogen in general gaining more popularity.

Don’t bet on Nikola and Plug Power working together soon in any meaningful way though. Trevor Milton, Nikola’s executive chairman, in fact just shot down this speculation. Milton recently tweeted that:

“Plug is a good company. Our needs are different than the product they provide. We also have [intellectual property] in the space that we have already partnered with groups on. Makes it a bit difficult to work with them but hopefully we can find other ways in the future.”

That is straight from the horse’s mouth. Nikola’s founder says it would not be easy to work with Plug Power in the near term. Milton doesn’t knock what Plug Power is doing. But don’t buy PLUG stock under the idea that they’re peer companies operating on a similar trajectory.

PLUG Stock Verdict

The comparison to Nikola is an especially interesting one. Even after its huge run-up, bulls can still argue that Plug Power looks relatively cheap compared to Nikola. After all, Nikola currently has a market capitalization of around $15.5 billion. Plug Power is still at $5.5 billion, by comparison, and Plug Power already has substantial revenues and customers in place.

However, unlike Plug Power, Nikola is still a fresh concept stock that is powering up now. If things go according to Nikola’s plan, it will be orders of magnitude larger than Plug Power in a few years. By contrast, in its two-decade run as a listed company, Plug Power simply hasn’t managed to generate profits or cash flow for more than a fleeting moment. Perhaps this time will be different. There is certainly a ton of enthusiasm around clean tech and hydrogen that we haven’t seen in awhile.

Still, unlike Nikola, we have a long and rather sorry track record from Plug Power. It’s unlikely that the company’s products made a quantum leap forward or that its business prospects have markedly improved over the past year, either.

Plug Power stock might be able to go higher simply off sector momentum, but at some point, Plug has to actually start generating meaningful profits. Otherwise, PLUG stock will plunge again after this upswing — just like it has so many other times over the past 20 years.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.

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