As we come into the last weeks of 2019, it’s safe to say that it has been a landmark year for hydrogen fuel cell (HFC) maker Plug Power (NASDAQ:PLUG). Year-to-date, PLUG stock has rallied an impressive 105% to essentially five-year highs on the back of healthy commercial HFC market adoption trends.
By comparison, the 43-stock SPDR S&P Kensho Clean Power ETF (NYSEArca:CNRG) is only up 34% for the year. That fund includes General Electric (NYSE:GE) and SolarEdge Technologies (NASDAQ:SEDG), among the portfolio’s top five holdings; PLUG stock the ninth-biggest weighting.
While hydrogen has long been labeled as the forgotten little brother of electricity when it comes to the alternative fuel category, there has been a broad upswing in adoption of HFC technology in the commercial market in 2019 for a variety of reasons. This broad upswing in adoption has provided a huge lift to Plug Power’s revenues and margins. This lift has powered PLUG stock significantly higher.
The good news? The best may be yet to come.
Alternative Fuel Movement is the Real Deal
It has become increasingly clear that the alternative fuel movement is the real deal. It’s vigorous, it’s happening everywhere, and it won’t slow anytime soon. Right now, all the hype is focused on electric vehicle adoption. But, there are enough positives about HFC technology that, as the alternative fuel market grows over the next few years, hydrogen car adoption rates should move higher, too.
To be sure, the hydrogen car market will forever remain tiny relative to the electric car market. But, this market doesn’t need to get that big to warrant buying PLUG stock today. The numbers work out so that, even if the HFC market forever remains niche, growth alongside the alternative fuels market is enough to propel huge long term gains in Plug Power stock.
The implication? It’s high-risk, high-reward. But, if you can stomach the risk, buying PLUG stock here and holding for the long haul may be worth it.
HFC Market Will Expand
Central to the bull thesis on PLUG stock is this idea that the HFC market will expand over the next several years.
This idea is relatively easy to understand. There are powerful trends at play across the globe as consumers are becoming more socially and ecologically conscious than ever before. These trends are resulting in consumers going plant-based in their diets to “save the animals” and driving alternative fuel cars to “save the environment”. These trends are vigorous today, and they are especially vigorous among younger consumers, so they project to stick around for a lot longer.
The implication for the alternative fuel market? It will continue to grow by leaps and bounds.
Right now, EVs are powering all the growth in the alternative fuel market. While they are the most cost-effective alternative fuel solution with the biggest charging infrastructure support, they aren’t the only alternative fuel solution. Hydrogen is another option. It’s a more-expensive option and there are fewer hydrogen charging stations out there than electric charging stations. But, hydrogen cars also offer enough benefits (shorter re-charge times, longer ranges, and less emissions) that over time as the alternative fuel market grows, more and more consumers will adopt hydrogen cars, and HFC cars will turn into a viable alternative to EVs.
Net net, the HFC market will expand dramatically over the next few years, and as it does, HFC makers like Plug Power will benefit from robust growth.
Plug Power Stock Should Go Higher
The numbers here suggest that PLUG stock can and will head higher, both in the near and long terms.
The HFC market will never be as big as the EV market. EVs already have such a big lead in the alternative fuel space, that it’s tough to see them relinquishing that lead, especially considering that they have the economic advantage. Still, the HFC market is so small today — and HFC makers like Plug Power have such small market caps — that investors don’t need the HFC market to become huge to see huge returns in PLUG stock.
Consider that Plug Power has a sub-$700 million market cap, while Tesla (NASDAQ:TSLA) has a $60 billion market cap. There’s no comparison. EV stocks are priced for huge success. HFC stocks are priced for zero success.
Accordingly, even limited success in the HFC market will drive HFC stocks like PLUG stock higher. I think limited success will happen over the next several years, given hydrogen’s unique lower charge times and longer range advantages.
Consequently, I think PLUG stock will go higher from here. How much higher? My numbers suggest that the stock could double by 2025.
Bottom Line on PLUG Stock
PLUG stock is a high-risk, high-reward play on HFC adoption. If consumers and businesses warm up to HFC technology, then Plug Power stock will soar from here. If they don’t, then the shares will crash.
It’s that simple.
Right now, I think the evidence and trends suggest that consumers and businesses will at least somewhat warm up to HFC tech over the next few years, and that’s why I think PLUG stock will stay on its big uptrend.
As of this writing, Luke Lango was long PLUG and TSLA.