11:00 AM (4/5)
This morning we spent time investigating news involving a tiny company called Plug Power (PLUG). Plug Power manufactures Hydrogen Fuel cells for use in a variety of situations, but most importantly for this story they make a fuel cell designed to adapt fork-lifts to a FC configuration in a large warehouse setting. Their product has been used by Wal-Mart warehouses for some time. The primary benefits are long charge life, and hugely reduced charge times compared to traditional batteries. The highly controlled setting of a large warehouse is particularly conducive to Fuel Cells – there are none of the uncertainties that hinder fuel cell adoption in cars.
Yesterday PLUG closed at around $1.30/share, largely due to falling revenues (set to fall 25% for 2017Q1). Consensus was that EPS would be -$0.07 for Q1. This morning PLUG opened 65.8% higher after it was announced that Amazon had acquired the right to buy up to 23% of the company, and was installing Plug Power’s GenKey system at a number of it’s facilities in a deal estimated to produce $70mm in revenue for 2017. Assuming previous estimates for Q1 revenue were accurate this indicates something like a 44% rise in Quarterly revenue.
We believe that early trading today has massively overvalued PLUG (at least in the short term, this deal will definitely mean better things for them in the future) but we aren’t confident enough to take a short position in the stock. We think the price should fall to something like $1.90 over the next few days. Unfortunately option pricing seems to agree with that assessment; Put options for 4/7 with strike prices at $2.00 are trading today at $0.16 putting the break even price before commissions at $1.84. Throughout the day we’ll be keeping a close eye on those options – if they fall below $0.10 they have a good chance for execution with minimal risk on our part.
Post Market 4:30 PM (4/5)
Despite strong early gains, the market finished somewhat down today after minutes from a Fed meeting indicated a pullback in federal stimulus money into 2018. Crude oil inventories rose slightly, but Crude prices continued their week-long rise due to an accompanying fall in the dollar value.