Hydrogenics (Nasdaq:HYGS) Up More Than 200% Since Our May 14 Call

July 1, 2008 – Hitting $2.26 this morning Hydrogenics (Nasdaq:HYGS) is up more than 200% since we first recommended the stock on Small Cap Pulse on May 14. Volume has picked up from an average of 300 to 400 thousand shares per day to more than 2 million on average in the past couple weeks. So why the breakout?

We think the primary catalyst for the stock running has been the promise of its hydrogen electrolyzers and fuel cell systems for the automotive industry. Last week, the company announced that it is providing an integrated hydrogen generation system to Shell Hydrogen LLC. Shell Hydrogen LLC announced it is opening California’s first hydrogen refueling station on a conventional Shell forecourt in Los Angeles. California has more fuel cell vehicles (FCVs) and hydrogen refueling stations than anywhere else in the world. At present, there are 25 hydrogen stations in California, with the majority being in the San Francisco and Sacramento area. There are ten more stations in planning stages. So Hydrogenics appears to be clearly positioned to serve what we think is going to be a burgeoning market, which is accelerating in light of pressure to transition our automotive economy away from fossil fuel.
However, we think the current valuation is definitely looking-forward, and in light of the recent run-up in stock price, it is probably getting ahead of itself. The stock is currently trading at about 4.8x P/S (ttm). We are recommending to our readers that they take some profits, and reduce their positions by 50%. We remain extremely bullish on HYGS over the longer-term and will be adding to our position if the stock pulls back below the $1.50 level.
Important Disclosure: SCPEditor is long HYGS.
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