Plug Power (PLUG), the alternative energy company and momentum darling of the moment on Wall Street, is surging again today. PLUG stock is up about 5% in premarket trading on news that the company has acquired ReliOn Inc., a developer of hydrogen fuel cell technology.
According to a press release, “The acquisition adds valuable fuel cell stack technology and products that Plug Power plans to integrate into several models of its GenDrive fuel cell systems with first deployments this year.”
The details of ReliOn and its “modular, scalable proton exchange membrane (PEM) hydrogen fuel cell systems” are a bit technical, so here’s the payoff for PLUG stock holders: The acquisition was shrewdly managed, because the deal didn’t cost Plug Power a dime — only $4 million worth of what most investors would call incredibly overvalued PLUG stock.
These stock-based deals are a favorite tactic of fast-growing stocks, both because they don’t take cash away from the business and because it’s a way to “sell high” when a company thinks it’s overvalued. After all, a CEO can’t come out and say the stock is wildly overbought … but he or she can use that stock to make deals like PLUG just did.
With Plug Power up an amazing 3,300% in the past 12 months despite a lack of current profits and a forward earnings multiple of 150 or so based on FY 2015 numbers, I think cashing out $4 million in PLUG stock to make this acquisition is a smart move.
Not because ReliOn is a profit powerhouse. According to reports, Plug Power expects “the acquisition to be accretive to earnings in 2015, and to generate approximately $1 million in EBITDAS loss in 2014.”
But hey, if Plug Power can wind up securing additional technology and marginal growth prospects for $4 million in stock that could very well become $2 million in stock overnight … why not get while the getting is good?
What’s next for Plug Power investors will be dictated wholly by sentiment. And judging by the market’s reaction today, sentiment is firming up again.
Plug Power’s stock is down sharply from over $10 at the beginning of March to what should be just under $8 as of the open today for a steep loss of more than 20% in a few weeks. Still, PLUG stock is up more than 300% since the start of the year.
Tread lightly on this fast-moving momentum stock. But in the very short term, it appears this acquisition — and the way that it has been structured — sits well with PLUG investors and with Wall Street.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.