Plug Power Stock Is on a Tear. What Gives?

The Plug Power Inc. liquid green hydrogen plant in Woodbine, Georgia, US. Coming into Friday trading, Plug stock was down about 1% year to date. (Bloomberg)

Key Points

About This Summary

• Plug Power shares are up 3.6%, marking its eighth consecutive day of gains, bringing the rally to 55%.
• The surge may be due to a short squeeze, as Plug Power is heavily shorted at about 40%.
• The stock jumped 19% after the Federal Reserve cut short-term rates by 0.25 percentage points.

Shares of hydrogen technology provider Plug Power are rising, again. Exactly why is hard to figure out.

It could be an old-fashioned short squeeze.

Shares of the hydrogen technology provider traded as high as $2.30 before sliding back to $2.18, up 3.8% on the day, while the S&P 500 and Dow Jones Industrial Average rose 0.5% and 0.4%, respectively.

It’s the eighth consecutive rise for shares, continuing a rally that has moved the stock up a surprising 55%.

There haven’t been any upgrades, price target changes, or material company updates. The average analyst price target is unchanged over the past week at about $2 a share.

Shares surged 19% on Wednesday, following the Federal Reserve’s cut of short-term rates by 0.25 percentage points, as expected, to a range of 4% to 4.25%.

Lower rates help a host of companies, reducing the cost to do business. Plug Power, for its part, doesn’t generate positive operating profit or free cash flow yet and still needs external financing.

Plug is also a heavily shorted stock, with about 40% of the shares available for trading sold short. Short sellers borrow stock they don’t own and sell it, betting prices will decline. In comparison, the average short interest for a stock in the S&P 500 is about 3%, according to FactSet.

High short interest can turbocharge any stock rally, with investors rushing to cover bearish bets to minimize losses if the stock rises. That’s called a short squeeze on Wall Street.

That’s one possible explanation for what’s going on with Plug stock.

Coming into Friday trading, Plug stock was down about 1% year to date. Its share price has ranged from 69 cents to $3.32 over the past 12 months.

Write to Al Root at allen.root@dowjones.com