{"id":51692,"date":"2014-05-23T05:57:49","date_gmt":"2014-05-23T09:57:49","guid":{"rendered":"http:\/\/countingpips.com\/?p=51692"},"modified":"2014-05-23T07:04:32","modified_gmt":"2014-05-23T11:04:32","slug":"5-massive-red-flags-surrounding-plug-power","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/05\/5-massive-red-flags-surrounding-plug-power\/","title":{"rendered":"5 Massive Red Flags Surrounding Plug Power"},"content":{"rendered":"
May 23, 2014<\/div>
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By WallStreetDaily.com<\/u><\/a> \"5<\/p>\n

Watching a momentum stock rocket higher can be thrilling. But if there’s one thing the dot-com collapse taught us, it’s that investing in a company simply because it’s gaining steam can also lead to disaster.<\/p>\n

It appears investors haven’t learned, though…<\/p>\n

The same speculative fervor is still active on Wall Street today – and the regulators have done little to curb investors’ blind enthusiasm.<\/p>\n

The latest example is advanced fuel cell technology firm, Plug Power<\/strong> (PLUG<\/a>).<\/p>\n

Plug’s Abysmal Treatment of Shareholders<\/h3>\n

Our Chief Technology Analyst, Marty Biancuzzo, put Plug Power through his C.H.A.O.S. Meter<\/a> in April.<\/p>

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It didn’t pass muster. As Marty said at the time, Plug is “an insanely volatile stock, with shaky fundamentals [and] a speculative energy technology that’s failed before.”<\/p>\n

I think that’s an understatement.<\/p>\n

Plug Power represents the purest form of wild, speculative frenzy with little more than a hope and a prayer for success.<\/p>\n

Here’s what I mean…<\/p>\n

Plug was trading for less than $1 in December 2013.<\/p>\n

Then the company announced that it was bullish on its own prospects, and a handful of analysts decided to get behind the stock.<\/p>\n

Other analysts called Plug’s bluff – proclaiming that the shares were worth half a buck, at best. But that didn’t stop many investors from riding the Plug express train higher.<\/p>\n

Shares ended up soaring to $11.72 by March. We’re talking about a quadruple-digit percentage increase in just over three months – based on zero fundamental improvements.<\/p>\n

Then things took a turn for the worse. (Shocker, I know.)<\/p>\n

After hitting its March high, Plug almost immediately announced a secondary public offering of more than 22 million shares.<\/p>\n

The offering was eventually priced at $5.50 per share – more than a 50% discount.<\/p>\n

So the company did nothing to temper the market’s enthusiasm for the shares at $11.72. But it was more than happy to sell shares to the same investors at less than half the price.<\/p>\n

Making matters worse, Plug has raised money two other times this year alone<\/em> – once at $3 and the other time at $5.74. And in 2013, it raised close to $150 million on sales of barely $30 million.<\/p>\n

To give you an idea of how much Plug raised relative to its sales, it would be like Apple raising $1 trillion in the market.<\/p>\n

Shares are now trading at just over $4 per share – after dropping to $3.70 last week after it reported mediocre earnings.<\/p>\n

It did provide an outlook that was bolstered by deals with Wal-Mart<\/strong> (WMT<\/a>) and FedEx <\/strong>(FDX<\/a>) to provide fuel cells. But both companies are buying the fuels cells to take advantage of federal tax credits for renewable energy. Eventually, those credits will disappear…<\/p>\n

Ultimately, Plug is doomed to fail. It’s obvious that the company is plenty satisfied with its shares trading for $3.<\/p>\n

But for investors who got in at $11, well… they got screwed.<\/p>\n

Now it’s time to ensure that the same thing doesn’t happen to you<\/em> going forward…<\/p>\n

Five Signs That You’re Dealing With “Roadkill”<\/h3>\n

Let’s review a few key things to keep in mind when investing in momentum stocks. If you see the following red flags, the stock is probably nothing more than “roadkill.”<\/p>\n