Plug Power stock faces a technical test just as its turnaround gains traction

Plug Power stock has pulled back sharply in recent months, sliding nearly 48% from its year-to-date high of $4.33 to $2.27. The retreat comes even as the company's turnaround strategy takes shape, with short interest remaining stubbornly elevated throughout the decline. So, is it time to buy PLUG shares?

Plug Power stock has plunged despite the ongoing turnaround

Plug Power is a top company in the hydrogen power industry. In addition to producing hydrogen, it also makes money by selling electrolyzers and offering services to power plants. Some of its top customers are companies like Amazon and Walmart.

The company has gone through a rough patch in the past few years, with its losses and cash burn rising. This has resulted in the company diluting its shares over time. Its outstanding shares jumped from 230 million in 2019 to 1.39 billion today. 

Recently, however, there are signs that the business is improving, with its turnaround strategy starting to bear fruit. Its turnaround has involved pausing some of its projects and announcing layoffs in a bid to boost its margins. 

The most recent results showed that its revenue jumped to $178 million in the second quarter from $173 million in the same period last year. It rose to $341 million in the first six months, up by over $40 million from last year. 

The revenue increase was driven by a surge in services provided on its fuel cells, power purchase agreements, and fuel delivered to customers. This increase was offset by the decline in the sales of equipment. 

Most importantly, the company announced an improvement in its bottom line. It made a net loss of $190 million in the second quarter from $228 million in the same period last year. The company’s gross margins improved to the break-even point, a big improvement from the previous minus 31%.

Plug Power believes that it has a bullish catalyst ahead. For example, it believes that its two biggest customers, Amazon and Walmart, plan to refresh more than 2,000 GenDrive units in the next three years. This will, in turn, lead to a significant recurring revenue opportunity.

Plug Power also boosted its forward estimate. Analysts believe that the annual revenue will come in at $819 million, up by 15% YoY, followed by $968 million.

Still, many investors remain skeptical about Plug Power as evidenced by its substantial short interest, which has jumped to over 20%. This is partly because many investors believe that the company will need to raise cash through dilution.

PLUG stock price technical analysis

Plug Power stock chart | Source: TradingView

The daily chart shows that the PLUG share price has slumped in the past few months, falling from the year-to-date high of $4.33 to the current $2.27. It has attempted to rebound after its earnings report.

The stock has found substantial resistance at the 50-day Exponential Moving Average (EMA). That is a sign that bears remain in control for now. Also, there are signs that it has formed a head-and-shoulders pattern, a common bearish reversal.

Therefore, the stock will likely remain under pressure as investors watch for more details on its turnaround strategy. If this happens, the next key support level to watch will be at $1.77, the neckline of the head-and-shoulders pattern. A move below that level will point to more downside to $1.50.