Short interest data can be a valuable risk management tool. If short sellers are targeting a stock, it’s because they see significant share price downside ahead.
In this report, we are going to look at the short interest data on Plug Power Inc (PLUG:US). Plug Power is a US company that is engaged in the development of hydrogen fuel cell systems. It is listed on the Nasdaq Composite and currently has a market capitalization of around $6.90 billion.
High Short Interest
Looking at the data on Plug Power, we see several red flags.
One is that short interest is very high at present. Currently, 259.39 million PLUG shares are on loan. That represents 47.99% of the free float.
Another red flag, however, is that short interest is rising rapidly. Four months ago, there were just 152 million shares on loan. Today, the figure is around 70% higher. Research shows that sharp increases in short interest are often followed by stock underperformance.
Overall, the data is very bearish, in our view.
It’s worth noting here that the short sellers have had a lot of success with Plug Power in the past. Back in January, we noted that Plug Power was getting attention from the shorters (short interest was 27% at the time). Since then, the stock has fallen from around $15 to $11.
Why Are Short Sellers Targeting Plug Power?
As for why the short sellers are targeting Plug Power, it could be related to the fact that the company has a history of disappointing investors. In May, for example, the company told investors that fuel margin remained under pressure due to increased hydrogen molecule costs associated with historically higher natural gas prices and continued supplier disruptions.
It could also be related to the company’s lack of profitability. Last year, Plug Power generated a net loss of $724 million. This year, analysts expect a net loss of $525 million. It’s worth noting that for Q1, loss per share came in at $0.35, well below the consensus forecast of $0.26.
Finally, the company’s valuation could be an issue for the short sellers. Currently, Plug Power has a trailing price-to-sales ratio of around 9.6, which is quite high.
Whatever it is the short sellers are looking at here, we think caution is warranted towards the stock. In our view, the high – and rising – level of short interest is a bearish indicator.