Why Plug Power Stock Popped Today

Shares of Plug Power (NASDAQ: PLUG), the maker of fuel cell systems -- and now also of the hydrogen to fuel them -- shot 13% higher through 1:11 p.m. ET Friday, as investors received encouragement that the company might be able to avoid a devastating (to morale) reverse stock split.

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Plug's plans to issue more stock

Our story begins one week ago, when Plug Power sent shareholders a preliminary proxy statement advising of the matters that will be raised at its July 3 annual general meeting:

"Approval of an amendment to the Company's charter to increase the number of authorized shares of the Company's common stock from 1,500,000,000 shares to 3,000,000,000 shares;" and

"Approval of ... a reverse stock split ... at a ratio of not less than 1-for-5 and not more than 1-for-200."

Unable to earn a profit selling fuel cells or hydrogen, Plug Power has to continually create and sell new shares to keep itself solvent. But as its share count approaches 1.1 billion, the company will soon need to authorize more shares to keep this ball rolling. Either that, or it must shrink its share count through a reverse split -- and then resume growing the share count again.

Is Plug Power stock worth buying?

As a business model, this all leaves much to be desired. I certainly wouldn't invest in Plug Power myself. But as RenewablesNow.com points out today, Plug is pleading with investors to approve at least one of the above options so that it can remain in business. As a consolation prize, Plug is also assuring investors that if they raise the ceiling on shares outstanding, it can avoid the reverse-split option.

Investors seem encouraged by this assurance today. That's why they're bidding Plug stock up.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.