Plug Power (NASDAQ:PLUG) is riding a wave of positive momentum that could see higher prices for years to come. But everything I say today comes with the caveat that Wall Street is in turmoil. Despite PLUG stock’s long-term thesis, there are macroeconomic influences that could change its short-term trajectory.
Energy — particularly oil — is dominating the headlines this week. This is thanks to a stunning move from Saudi Arabia that slashed crude oil prices and flooded the market.
Apparently, this strategy is intended to bring Russia back to OPECs’s negotiating table. OPEC wanted Russia to agree to oil production cuts that would help stabilize the market in the wake of the coronavirus from China.
The immediate impact of this was an overnight collapse in oil prices — and therefore oil stocks. This also affects alternative energy stocks like PLUG stock. Because fossil fuel prices are down over 20% this week, the long-term thesis for Plug Power and its peers is weakening.
But don’t panic. This doesn’t mean that the long-term argument dies along with oil prices. It’s just a hiccup in the middle of a positive trend. Eventually, prices will go back up and we will need to use more of the company’s products and services if we want to sustain the planet.
The Fundamentals of Plug Power Stock
Plug Power trades for less than $5 but that doesn’t mean it’s cheap. Yes, it’s still losing money, and it sells at a price-sales ratio near 5. Clearly there is some froth here to shed in times of trouble.
However, the company just reported earnings, and they beat expectations on margins. The loss was smaller than feared, but the sales were still smaller than forecast. Naturally, investors’ knee-jerk reaction was to sell the stock down hard on the earnings headlines.
In the end — and at its lowest this week — the stock was down over 20% from its pre-earnings levels.
It is important to note that this drop was exacerbated by the market-wide crash in oil. After all, the CBOE Volatility Index (VIX) is holding up near 50. That is an indication of a turbulent market.
At times like this, investors shoot first and ask questions later, so I won’t be quick to judge the dip as a negative vote against Plug Power.
There Are Technical Headwinds in the Chart
Looking past the fundamentals, there are other potential pitfalls brewing in the chart. Plug Power’s drop below $4.30 per share put the short-term trading action in the hands of sellers. This means that spikes are likely to fade until bulls are in control. This can happen if they can lift the stock by at least 20 cents.
The good news is that for the long term, buyers are still in charge. PLUG stock has been setting higher lows since August.
Stated simply, Plug Power is part of the clean energy movement, which alone makes its long-term thesis viable. Moreover, there has been a recent push into greener environmental, social and governance (ESG) investing. The best minds in the investment community are on board, and even BlackRock (NYSE:BLK) has released a statement regarding its responsible standards going forward.
So far, investors are voting (and buying) along with this trend. And as long as Plug Power stays above two important pivot zones at $3.50 and $3, the bulls have support.
The experts agree with this positive outlook since it the stock is still trading 50% below the average price target of $5.88.
Plug Power’s Outlook
During the earnings calls — and in reference to the coronavirus — CEO Andy Marsh assured investors that suppliers in China are not reporting any material disruptions. He went further, saying that Plug Power has “never been in a better position” and that 2020 is shaping up to be a good year for the company.
For the bulls, these are comforting words. All the stock needs is to survive the turbulence on Wall Street and then the business will take care of itself.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.