Why Plug Power (Nasdaq: PLUG) Bought ReliOn Inc.

The news sent Plug Power stock up 4.5% in after-hours trading yesterday, though the stock was only up about 1.5% in mid-day trading today (Thursday).

Of course, single-digit percentage gains for Latham, N.Y.-based Plug Power are peanuts. Shares of the fuel-cell maker are up 4,231% over the past 12 months and 389% so far in 2014. Currently priced at $7.59, the overheated stock has pulled back somewhat from highs in early March of more than $10.

Analysts said that using PLUG stock to make the acquisition was a smart move, as it takes advantage of the huge run-up in the share price.

Plug Power said that the ReliOn deal will generate about $1 million in losses this year, but will add to earnings in 2015.

Plug Power said it wanted to combine ReliOn's innovative fuel stack technology with its own GenDrive fuel cells, which can replace lead-acid batteries in electric lift trucks.

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But the acquisition will do more than just add to Plug Power's product line. ReliOn also brings 34 U.S. fuel cell patents to add to PLUG's 150 existing patents on fuel cell design, processing, and storage.

What's more, ReliOn has already installed more than 5,000 fuel cell stacks to such customers as telecoms, military installations, railroads, utilities, and off-grid markets - all of which will help Plug Power broaden its footprint in the market.

And those aren't the only reasons PLUG stock is soaring...

The dramatic rise in Plug Power stock over the past year is partly a result of growing investor interest in alternative energy technologies, but PLUG has also made several attention-grabbing deals.

For example, in January Plug Power announced a partnership with FedEx Corp. (NYSE: FDX) to develop hydrogen fuel cell extenders for 20 FedEx electric trucks.

And in February Plug Power signed a contract with the world's largest retailer, Wal-Mart Stores Inc. (NYSE: WMT), to buy 1,738 more of PLUG's signature GenDrive fuel cell units. Wal-Mart uses the product to run its electronic lift at six of its North American distribution centers.

If PLUG stock keeps rising, it may well get another strong push from a developing short squeeze. Some investors, probably noting Plug Power's lack of profits despite growing revenue, have bet on shares to fall.

Nearly a third of all PLUG shares are short right now. But the higher PLUG rises, the more the short-sellers go into the hole, and the more likely they are to "cover" by purchasing the stock to avoid further pain.

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  Plug Power Acquires ReliOn for Approx $4M