Plug Power (NASDAQ:PLUG), which is a leading manufacturer of hydrogen fuel-cell systems, got its start over 20 years ago as a joint venture between DTE Energy (NYSE:DTE) and Mechanical Technology Inc. The company was able to raise substantial amounts of money and it would soon come public. PLUG stock certainly benefited from the roaring bull market, as the price would hit an all-time high of $1,498 on Mar. 10, 2000.
But this would be the beginning of a grueling struggle. To put things in perspective, the average annual return for PLUG stock during the past 15 years is an awful -15.9%.
Despite all this, the company has still found ways to build the business and unlock new opportunities. In fact, PLUG stock has recently been showing impressive gains, going from $1.37 to $3.90 during the past year. The market capitalization is now at about $1.17 billion.
Now it’s understandable for there to be skepticism. No doubt, there have been myriad rallies in PLUG. But they would all fizzle out.
However, I think this time there is good reason that this one could be sustainable. It really does look like PLUG has hit a turning point.
So, let’s see why.
Plug Power has the advantage of being an end-to-end platform for hydrogen and fuel-cell systems. The company currently has over 29,000 GenDrive units that have been deployed. The technology has been shown to improve productivity, lower operating costs and reduce carbon footprints. The company also has a strong infrastructure, with over 80 hydrogen stations and a growing patent portfolio.
As a testament to the technology, Plug Power has a stellar customer list. Just some include Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), Procter & Gamble (NYSE:PG) and Home Depot (NYSE:HD). Granted, the company has a long history with trying to get enough funding for its operations. The business is certainly capital intensive. But recently, Plug Power raised $120 million in a secondary offering, which should be enough for the next year or so.
The addressable market opportunity for Plug Power is enormous. The company believes it could be worth as much as $30 billion (and this is only for the material handling business). For example, there are six million forklifts in the world and about 1.5 million are sold each year.
If anything, the traditional forklift segment is vulnerable to disruption. Electric versions have long charging times, the need for storage of batteries, and so on. But hydrogen fuel cell forklifts take only a couple minutes to charge and there is no need for large storage space. And of course, there is the benefit of sustainability, which is a big selling point for customers.
Momentum and Plug Stock
A key to the success of Plug Power has been its focus on the forklift market. For the most part, the sales cycles are not as long as for other applications (such as for selling large energy systems). What’s more, there are often recurring purchases and maintenance.
An example of the strength of this business model can be seen with a recent deal involving an unnamed Fortune 100 company (this was announced on Jan. 6). It was for a hefty $172 million for GenDrive fuel cell power systems.
Here’s what the CEO of Plug Power had to say about it:
The material handling industry remains our core growth market in the near-term. This sizable contract signifies continual market validation to customer’s rapidly moving material handling business thus far. We commend this customer for its leadership in hydrogen and fuel cell adoption throughout the logistics business. Coupling this growth with already unfolding market expansion in stationary power and on-road electric vehicles well positions Plug Power to achieve our $1B gross billing goal for 2024.
Wall Street analysts agreed. According to B. Riley FBR analyst, Christopher Van Horn: “Adoption of Plug’s products continues to ramp more quickly than we thought.”
In fact, based on this momentum, he raised his price target to $6. This assumes 58% upside from current levels on PLUG stock.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.