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Can Plug Power (PLUG) Sustain its Gains Through Friday?

Tickers in this article: PLUG

NEW YORK ( TheStreet) -- Pre-market activity indicates Plug Power   isn't through with its gains yet. After a stellar Thursday, which saw the stock increase 42.5% to $1.81, early market trading has seen it gain a further 13.3% to $2.05. Over the week, the alternative fuel-cell developer is up 146.3%.

The micro-cap saw heavy trading volume over Wednesday and Thursday after management shared positive news the company would likely turn a profit in 2014, the first time since its market debut 14 years earlier. To do so, it would need to ship 3,000 units over the 12 months starting January. The company's current facility has the resources to manufacture 10,000 units.

Positivity over its 2014 fiscal year stems from several big-order clients the Latham, N.Y.-based business expects to book in the fourth quarter ended December. These contracts would likely garner $30 to $40 million in revenue for the quarter and provide a recurring revenue stream over a multi-year agreement.

Despite the gains, TheStreet Ratings team remains bearish with a "sell" rating and score of D-. The team has this to say about its recommendation:

"We rate Plug Power (PLUG) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electrical Equipment industry. The net income has significantly decreased by 54.0% when compared to the same quarter one year ago, falling from -$10.33 million to -$15.9 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Electrical Equipment industry and the overall market, Plug Power's return on equity significantly trails that of both the industry average and the S&P 500.
  • PLUG, with its decline in revenue, underperformed when compared the industry average of 10.3%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • PLUG's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.21 is sturdy.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

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