Plug Power (NASDAQ:PLUG) has proved the skeptics wrong in 2019. PLUG stock up from $1.24 on Jan. 2 to a little more than $3 today. With the stock nearly tripling in value, it may seem it’s too late to enter a position, but the party may just be getting started!
With an audacious goal to reach $1 billion in revenue by 2024, Plug Power stock has significant upside potential. But does the company have what it takes to grow nearly five-fold in five years?
In the past few years, revenues have skyrocketed as major companies have adopted fuel cell technology for their warehouse operations.
Wal-Mart (NYSE:WMT), Amazon (NASDAQ:AMZN), and others now use Plug Power’s hydrogen fuel cells (HFCs) to power their forklifts. The company is also making moves into electric vehicles. Plug Power is working with Deustche Post’s (OTCMKTS:DPSGY) DHL to power its StreetScooter vans with HFCs. Other delivery businesses like FedEx (NYSE:FDX) could also adopt this technology.
But is the current share price getting ahead of itself? The company went public 20 years ago, but only recently started making headway. But with big opportunity coupled with high dilution risks, there’s a lot to consider with this speculative growth name.
Short-Term Catalysts for Plug Power Stock
Plug Power recently released quarterly earnings results for the period ending Sept. 30 (Q3 2019). The company saw revenues of $56.4 million, up slightly from the prior year’s quarter ($53.2 million in sales). On an operating basis, Plug Power continues to lose money. The company saw quarterly operating losses of $13.2 million, slightly up from Q3 2018’s $12.6 million in losses.
But investors are less interested in current results. They want to know whether the grow train can continue humming on the path to $1 billion in sales. Roth Capital analyst Craig Irwin is bullish on PLUG’s prospects. He believes Plug Power’s earnings have reached an “inflection point”, and that the company could have “material” EBITDA profitability in 2020.
Key to Plug Power’s strategy is adding one new multi-site customer annually. By getting additional large businesses to adopt HFCs to power their forklifts, the company could reach its goal of $750 million in materials handling sales by 2024.
The electric commercial vehicle market is a secondary focus for PLUG stock. The company is driving to generate $200 million in revenue from the on-road EV segment within five years. Along with these markets, the company is making moves into stationary applications like power stations and data centers.
Are these expectations priced into the stock? To some extent, yes, but the bigger risk is dilution. Even if the company succeeds, an increased share count could reduce upside.
Dilution and PLUG Stock
The key to the PLUG’s future price is whether or not they meet their growth targets. The company’s 2024 EBITDA goal is $200 million. Assuming growth continues, investors at that point may deem shares worthy of an high EBITDA multiple.
Back in September, InvestorPlace’s Vince Martin ran the numbers. He estimated PLUG could be trading at $7-$9/share by 2024 if these goals are met. But it is tough to predict what Plug Power’s capitalization will be in five years.
The company may need to borrow more money to fuel this growth. As the company expands, debt financing will be easier to secure, but more debt impacts the valuation of the company’s common stock.
The company could also raise more equity to fund this growth. I have previously discussed dilution risks with Plug Power stock. Since July, the amount of “dilutive potential common stock” has increased from 200.9 million shares to 217.9 million shares. This is on top of the company’s 261 million shares outstanding.
Customers like Amazon have previously received warrants to buy Plug Power stock. The company may have to provide more equity kickers to entice big customers. What does this mean? Even if the company reaches its financial targets, dilution could cut the upside for investors entering the stock today.
The Bottom Line on Plug Power Stock
Fundamentals alone will not help you out. Plug Power is what you call a “story stock,” the price of shares is moving based on new developments, not on valuation based on current fundamentals. A big development (such as signing a major customer) could send shares even higher.
With this in mind, don’t try to short this stock. Shares could soar on just a crumb of good news. Alternately, shares could plummet if investors lose confidence in the company’s story. HFC technology offers an interesting opportunity. Electric vehicles may have an edge in terms of personal vehicle adoption. But fuel cell technology may a future with commercial applications.
Plug Power could meet its audacious growth goals. But high dilution may limit upside. Keep this in mind before entering a position.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.