Plug Power stock just formed a rare bullish pattern but risks remain

Plug Power (NASDAQ: PLUG) stock price sell-off gained steam on Friday as the company reported more bad news. The shares plunged to a low of $7.31, the lowest level since July 2020. It has dropped by more than 90% from its all-time high, bringing its total market cap to over $4.5 billion.

Plug Power plant delay

Plug Power, a leading player in the hydrogen energy industry has gone through numerous headwinds in the past few years. On the positive side, the company’s revenue jumped from more than $174 million in 2018 to over $875 million in the trailing twelve months (TTM). 

The management believes that its revenue will be between $1.2 billion and $1.4 billion this year. Most analysts believe that the management is extremely optimistic.

This revenue growth, however, has come at a cost as its net loss has jumped from over $85.6 million to $837 million. Its total operating expenses jumped to over $541 million. These costs are largely understandable since the company is still in its early stages of development.

In addition to rising losses, Plug Power stock price has crashed because of the recent Louisiana project delay. The firm now expects that the project will achieve full production in 2024, later than its previous guidance of late 2023. 

As a result, analysts at Morgan Stanley and Cowen believe that its profitability path will be longer. Analysts at Roth and Jefferies have recently downgraded the stock. And investors believe that the stock has more downside as its short interest stands at over 30%.

Is it safe to buy Plug Power stock dip?

Plug Power is facing substantial headwinds as it aims to become a leading player in the hydrogen industry. The biggest challenge is that it is still burning cash and its gross margins are lower than expectations.

Its total cash and short-term investments dropped from over $3.8 billion in 2021 to just over $1 billion in the last quarter. Therefore, I believe that Plug Power will need to raise additional capital in 2024 or in 2025, which could lead to more dilution.

The other risk for Plug Power stock is that it is now attempting to move below the important support level at $7.45, the lowest level in May this year. A break below that level will signal that there are more sellers in the market.

On a positive side, the shares are forming a double-bottom pattern whose neckline is at $13.44. In price action analysis, this pattern is one of the most bullish ones. Remember, in my last article on Plug Power, I accurately predicted that the shares would slip since it had formed a small double-top.

Therefore, while the trend is still bearish, we can’t rule out a situation where it rebounds in the coming months.