Over the past month, Plug Power (NASDAQ:PLUG) shares have experienced roller coaster price action. In mid-July, Plug Power stock briefly entered rebound mode.
At the time, renewed hopes for a possible “Fed pivot” on interest rates later this year sent PLUG and other renewable energy stocks higher.
However, not too long after this short-lived rally, the pressure was back on Plug once again.
Besides fading excitement about lower interest rates, an announced $200 million secondary offering of newly-issued shares sent this stock back in the wrong direction. Yes, since the secondary offering news, PLUG has found support, between $2 and $2.50 per share.
You may be tempted to buy the hydrogen fuel cell company’s stock ahead of their earnings release.
Unfortunately, taking a closer look at the company’s current situation, there is much that suggests that a further downward spiral for shares is much more likely.
Plug Power Stock and its Deceiving Squeeze Appeal
With its shares plummeting to levels unseen since before the pandemic-era renewable energy stock boom, a sense of unease grips the hearts of speculators, fearing a potential market collapse.
Hence, the possibility that you may be looking at Plug Power stock before earnings, as a possible “short squeeze” play. After all, 32.6% of PLUG’s outstanding float is currently sold short. Shares have already taken a hit due to the aforementioned dilutive secondary offering.
Again, already walked-back expectations could set the stage for better-than-expected results.
In the forthcoming earnings release, scheduled to happen post-market on Aug. 5, Plug Power’s management could also provide upbeat updates regarding the company’s recently-funded “green hydrogen” production facility projects.
Yet while some of the ingredients may appear to be in place to drive a post-earnings short-squeeze rally for PLUG later this week, making a wager on such an outcome may be more likely to end in tears.
While not certain, it may have to do with the “when” and “why” behind Plug Power’s secondary stock offering.
The Latest Warning of a Continued Downward Spiral
Based on the current Plug Power stock price, the company’s latest sale of newly issued shares represents dilution of around 10%. Yes, that may not sound massive.
Moreover, with PLUG already declining by double-digits since the secondary offering announcement, you may already think that this dilution is already priced-in.
However, there may be more to it than just a one-and-done drop in response to this round of dilution.
As Seeking Alpha commentator Henrik Alex argued on July 19, this pre-earnings capital raise is a big red flag. For one, the prospectus issued for the offering indicates that Plug Power’s cash burn rose to nearly $300 million last quarter.
Higher cash burn means that Plug Power will not report lower-than-expected losses for Q2 2024. Results thus will fall short of forecasts, which may in turn drive a post-earnings sell-off.
Alongside this, there is a disheartening takeaway for PLUG’s longer-term prospects. As cash burn runs high, another capital raise may be just around the corner.
That’s not all. With Plug Power’s expansion years away from coming online, much less becoming profitable, chances are several more capital raises lie ahead. With this, a downward dilution spiral may persist into 2025 and beyond.
Bottom Line: “Pull the PLUG” Before Earnings
Not too long after Plug Power’s last earnings release in May, major news regarding the company’s obtaining of a loan guarantee from the U.S. Federal Government helped to outweigh the impact of disappointing fiscal results.
This time, however, PLUG may not benefit from the emergence of such major news out of left field. Yes, it may be possible for external factors to have some positive impact on Plug Power’s near-term price performance.
Further bullish news on interest rates, or even news about the upcoming U.S. Presidential election perceived as positive for the renewable energy space could move PLUG. Even so, it may be better to play it safe, and stick to the fundamentals.
As it stands now, this busted “green wave” play is likely to experience further shareholder dilution, along with little-to-no improvement in its fiscal performance.
With this, “pull the PLUG” on Plug Power stock before earnings, and continue to stay away.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.