PLUG stock - missing something obvious?

[hgm735]

As a newbie investor, would like someone to explain what could possibly be missing here...

PLUG looks great right now, as AMZN will be buying it.

The history looks great, as in 2014, when Walmart bought this, it exploded (>1000% gain).

Wondering if I should add more tomorrow morning - today I bought 10K worth.

I don't see why this would not go up similar to the way it did in 2014. Of course, there are a multitude of differences I'm sure, but in layman's mind, this looks like a great opportunity. Thoughts? Pitfalls?

 

[Gumby]

As I understand the deal from looking at the 8-K, AMZN has committed to be a customer and will be able to exercise warrants for at least 34 million shares at about $1.19/share, but only after it spends $600 million buying from PLUG. With total warrants for 55 million shares. The shares traded up 73% today to $2.25.

This could very well be the start of something great for them and for you, but I would be leery of saying so simply because AMZN entered into this agreement with them. I think I would want to dig a little deeper. Some questions I would ask:

1. Will they be able to turn a profit on making the fuel cells for AMZN? A very quick scan of their last 10-k shows that top line revenue is not really a problem. The main problem is that they can't turn that revenue into positive earnings and haven't for quite some time (maybe ever). I don't know anything about their business, but even with a guaranteed buyer of your product, you still have to turn a profit.

2. If and when AMZN exercises their warrants, you will be diluted by about 25%. (currently 180 million shares outstanding)

 

[hgm735]

Thanks for explaining, will definitely be cautious. Hopefully having AMZN as an ally will help them get their act together!

 

[Sunset]

Why not buy options instead of the shares to leverage the purchase (if they are available) ?
Of course then you have to predict when they boom...

 

[nash031]

Thanks for explaining, will definitely be cautious. Hopefully having AMZN as an ally will help them get their act together!

Amazon isn't necessarily an ally. They're a customer. If the business fundamentals aren't all there before bringing on a major customer, there's a chance they won't get better with added complexity.

 

[Totoro]

This is VC territory with a very large greater fool component added to it.

Illustration of the stock price: went from 0.12 to 8, and then promptly back to 0.85. That's pretty much all inflated expectations. Case in point: the company burns through 60 million USD cash a year. Loss per share 0.32 USD. They'll need another finance round pretty quickly at this rate.

It may pan out, but you better do your homework down to the nuts and bolts at the technology level. Amazon will be hedging their bets, so you should too.

Unless you like this sort of gambling, you'll get better odds at the casino.

 

[OldShooter]

... you'll get better odds at the casino.

This.

 

[pb4uski]

This paragraph from their most recent Form 10-k says it all.... woof, woof:

We have not achieved operating profitability in any quarter since our formation and we will continue to incur net losses until we can produce sufficient revenue to cover our costs. Our net losses attributable to the Company were approximately $57.5 million in 2016, $55.7 million in 2015, $88.5 million in 2014, $62.7 million in 2013 and $31.9 million in 2012. As of December 31, 2016, we had an accumulated deficit of $1.1 billion. We anticipate that we will continue to incur losses until we can produce and sell our products on a large‑scale and cost‑effective basis. We cannot guarantee when we will operate profitably, if ever. In order to achieve profitability, management must successfully execute our planned path to profitability in the early adoption markets on which we are focused. The hydrogen infrastructure that is needed to support our growth readiness and cost efficiency must be available and cost efficient. We must continue to shorten the cycles in our product roadmap with respect to improvement in product reliability and performance that our customers expect. We must execute on successful introduction of our products into the market. We must accurately evaluate our markets for, and react to, competitive threats in both other technologies (such as advanced batteries) and our technology field. Finally, we must continue to lower our products’ build costs and lifetime service costs. If we are unable to successfully take these steps, we may never operate profitably, and, even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.

Formation was in 1997... so they have been plugging away at trying to make a profit for almost 20 years and losing on average over $50 million a year.... P.T. Barnum was right.

Who knows, it could end up being a home run but it is much more likely that it will be a strike-out...very speculative IMO.

 

[OldShooter]

... a newbie investor, .... Thoughts? Pitfalls?

Here is something very basic that it is important for you to consider:

For every buyer (you) there is a seller. The strong odds are that your counterparty is a professional who knows far more than you do about the stock and has far greater experience and resources. This seller has determined that the the appreciation potential above the current price is not good and/or that the probability of a decline in price is high. So this person is selling. Said another way, you are a babe in the woods, which Google defines as: "an innocent or naive person, especially one in an unfamiliar or dangerous environment.".

Check https://en.wikipedia.org/wiki/Greater_fool_theory and consider carefully whether you are the greater fool that this seller has been waiting for.

As part your newbie research you should read some of the classic books, like "A Random Walk Down Wall Street" and "Winning the Loser's Game" Also try to read some material on the "Efficient Market Hypothesis" and realize that, to the extent the hypothesis is true, what you are proposing to do is nothing more than gambling.

BTDT, I am now wiser and a passive investor.