If insiders are selling large amounts of company stock, it can pay to approach that stock with caution. Insiders have an information advantage over other investors, and large sales from these individuals can be a sign that the stock is overvalued.
In this report, we are going to flag some insider selling at Plug Power Inc (PLUG:US). Plug Power is an US company that is engaged in the development of hydrogen fuel cell systems. The company is listed on the Nasdaq Composite and currently has a market capitalization of $30 billion.
Plug Power: Insider Selling
Our records show that on 19 January, President and CEO Andrew Marsh sold 573,268 shares through an automated trading plan at a price of $65.82 per share. This sale – which reduced his holding from 1.322 million shares to 748,680 shares, netted the insider proceeds of approximately $37.7 million.
While Form 4 filings show that this insider selling activity was pre-arranged through a 10b5-1 trading plan, we think it’s still significant. One reason is that it has reduced the size of the insider’s position by 43%. Would an insider offload 43% of his stock if he thought it was going to continue rising?
Secondly, Plug Power shares have had an incredible run over the last 12 months, rising around 1,600%. After this share price rise, the company now trades at around 72 times forward-looking sales. That is a high valuation that doesn’t leave much room for error.
Short Sellers Are Targeting Plug Power Stock
Additionally, it’s worth noting that short sellers are targeting Plug Power stock. Recently, Kerrisdale Capital, a New York-based hedge fund, revealed it is shorting $200 million worth of shares in Plug Power in a tweet that resulted in the PLUG share price falling 7.5%.
We shorted $200m of a stock this past week. Find out which later this morning— Kerrisdale Capital (@KerrisdaleCap) January 20, 2021
We're short $PLUG. Report at https://t.co/DzuSaER4oL. We discuss with @grizzlemedia at 1:30 at https://t.co/pbanbMN0nP. Plug isn't a way to bet on the overhyped "hydrogen economy"; it's just a /r/wallstreetbets roach motel where your fellow travelers probably failed HS chemistry— Kerrisdale Capital (@KerrisdaleCap) January 20, 2021
Kerrisdale said that Plug Power is a "/r/wallstreetbets roach motel," referring to the Reddit forum popular among retail investors, and that it isn’t a good way to bet on an “overhyped” hydrogen economy.
Kerrisdale also noted that Plug Power pulled in a "paltry" $300 million in revenue in 2020 while trading at 40x its own "aggressive" revenue projection for 2024. Plug Power's revenue is also almost entirely derived from selling hydrogen-powered forklift systems, which is a niche product "destined for obsolescence," according to Kerrisdale.
"Plug's enterprise value assumes with near certainty the successful propagation of a future ‘hydrogen economy’ in which green hydrogen power fuels our cars, trucks, homes, and factories," the short seller wrote. "Sadly, the laws of physics virtually guarantee that a large-scale hydrogen economy will never exist. It will always be more efficient, cost-effective, and safer to just use electricity directly."
In light of the valuation here, and the short selling activity, we see the large insider sale as a reason to be cautious towards Plug Power stock right now.