Another InvestorPlace columnist, Will Healy, recently called Plug Power (NASDAQ:PLUG) a speculative buy. In August, I, too, called PLUG stock an attractive speculative play.
However, I wrote that before Plug Power stock could hit $3 and stay above that level, it needed to go out and find itself a lot more business than the contracts it already has with Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).
On Sept. 18, PLUG unveiled an ambitious five-year plan to do just that. By the end of that time, it hopes to have $1 billion of revenue, $170 million of operating income, and $200 million of adjusted EBITDA.
Is this plan more pie-in-the-sky from a company that’s had plenty of chances to shine in its longish history or is this time somehow different for PLUG stock?
Let’s consider both sides of the argument.
It’s Nothing But Snake Oil
Will Healy does an excellent job highlighting the issues all investors should take into account before spending their hard-earned capital on PLUG stock.
“22 years after its founding, it looks like a startup financially. It posts massive revenue growth, but also significant losses that appear set to continue for years. ” Healy wrote in his column which was published on Oct. 23.
PLUG stock is the chronic underachiever that never seems able to maintain momentum long enough to attract heavy hitters to its stock.
Plug Power is expected to generate just $245 million of sales in 2019 and it’s losing money on an operating basis, as it had an operating loss of $35.9 million in the first six months of 2019. Despite those discouraging numbers, the market cap of PLUG stock is almost three times its sales. That’s the same multiple as Amazon (NASDAQ:AMZN) stock, which generates free cash flow while dominating the huge sectors of e-commerce and the cloud.
To go from $245 million in sales to $1 billion by 2024 requires PLUG to grow its top line by 33% per year. Over the last three years, it’s increased sales by an annualized average of 19%.
I suppose it’s possible for PLUG to accomplish the goal, but it’s never been able to accelerate its growth to that degree.
PLUG Stock Will Break Out
Andy Marsh, PLUG’s CEO, expects to add one multi-site customer like Amazon and Walmart in each of the next five years. At the end of the five years, he thinks that Plug’s core material-handling business can sell more than 25,000 units and generate $750 million of revenue each year.
To date, the company has shipped more than 28,000 fuel cells to its material-handling customers, who use the fuel cells to power their forklifts. Additionally, the potential global market for PLUG’s products is estimated to be as high as $300 billion. So it’s possible that Plug Power could meet its goal.
The company’s new targets might not have been established at all without the hiring of Sanjay Shrestha, the company’s new chief strategy officer, who spent seven years at Lazard (NYSE:LAZ) leading its renewable energy research. The former analyst gave Plug Power’s five-year plan the financial underpinnings necessary to convince the board to approve these ambitious goals.
“(Shrestha) had a vision of how we would do it and Sanjay gave it a much better financial understanding and insights in how we could accomplish the plan,” Marsh said.
The fact that BlackRock (NYSE:BLK) and Hudson Bay Capital Management own 12.1% of PLUG stock combined is an encouraging sign. And Amazon has warrants to buy enough PLUG stock to give Jeff Bezos and company 18% of the company.
Finally, it’s important to remember that the use of hydrogen fuel cells has increased dramatically in recent years, providing the company with a significant runway for growth.
PLUG Stock Remains a Speculative Buy
As much as I want to say Plug Power’s got a real shot at achieving its $1 billion revenue goal by 2024, I just can’t. There are just too many variables that could impede the company’s ability to grow fast enough, some of which are out of its control.
That said, I still see PLUG stock as a good speculative buy for aggressive investors who understand that a plan to grow to $1 billion in sales isn’t the same thing as doing it.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.