Changing Economics and Climate Are Prime Movers for PLUG Stock

As InvestorPlace columnist Vince Martin has pointed out, investors have had high expectations for Plug Power (NASDAQ:PLUG) stock for many years, but PLUG stock has almost always disappointed investors.

Changing Economics and Climate Are Prime Movers for PLUG Stock

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Plug Power stock has jumped 44% in the last three months, and PLUG stock has more than doubled since Martin’s piece. Citing the company’s five-year guidance and large addressable market, PLUG could meet its ambitious target of generating $1 billion in revenue within five years.

I think PLUG stock has been revitalized primarily because the company is benefiting from two of the modern world’s biggest trends: the rapidly increasing popularity of eCommerce and deteriorating weather.

PLUG Stock and eCommerce

Of course, eCommerce is becoming more and more prevalent with almost every retailer launching eCommerce operations. Warehouses are an integral part of those operations since goods must be stored somewhere before they can be shipped to consumers.

At this point, PLUG’s core business is providing hydrogen-powered fuel cells for material-handling vehicles such as forklifts and pallet jacks. So the proliferation of eCommerce has greatly increased PLUG’s potential market.

But wait; there’s more.

Fuel cells are much cheaper than batteries (which are usually used to power material-handling equipment in warehouses). According to Greentech, hydrogen fuel cells take up less space than batteries, enable forklifts to stay faster for longer, and allow warehouses to get by with fewer people.

Fuel cells require fewer employees because drivers can refuel the cells themselves while recharging batteries requires additional staff. Additionally, fuel cells can be recharged much faster than batteries.

Of course, all of the above makes running warehouses cheaper. When large companies only had, say, ten warehouses in the U.S.,  those savings weren’t so meaningful. But now large retailers operate dozens of warehouses in America.

Walmart (NYSE:WMT) has more than 200 warehouses and distribution centers in the U.S. and Amazon (NASDAQ:AMZN)has 477 warehouses in the nation). As a result, saving, say, $500,000 per year per warehouse adds up to real money, even for those huge companies.

That’s likely the main reason why Amazon committed to buy over 55 million shares of PLUG stock and up to $70 million of its fuel cell products. It’s also the main reason why Walmart has partnered with PLUG and why an unnamed Fortune 100 company is going to spend $172 million on PLUG’s products over two years.

Plug Power and Climate Change

It’s no secret that the world’s weather is getting more erratic, with many more and stronger hurricanes, more and stronger forest fires, and more intense floods. Consequently, electricity and gasoline are not always readily available to power vehicles. California’s recent blackouts were a case in point.

A combination of solar energy and energy storage could be one solution, but charging battery-powered electric vehicles still usually takes hours, so they may not be readily available in an emergency. In theory, companies could keep spare batteries on hand, but batteries that power electric vehicles are rather large.

Hydrogen fuel cells are much smaller than batteries used in electric vehicles and charge much more quickly. As a result, hydrogen fuel cells seem like the best way to power vehicles after weather emergencies have knocked out electricity and prevented access to gasoline.

That’s probably the key reason why Deutsche Post, Germany’s mail carrier, and FedEx (NYSE:FDX) agreed to buy vehicles made with PLUG’s fuel cells. In the coming years, I expect many other government agencies and delivery services that have to keep their vehicles running in bad weather and tough conditions to buy fuel cells from PLUG.

The Bottom Line on PLUG Stock

With the expansion of eCommerce prompting retailers to build many more warehouses, PLUG should make plenty of additional deals with retailers and logistics companies. Meanwhile,  the increasing number of weather emergencies should raise demand for the company’s  fuel cells.

With a market cap of just $1.1 billion, PLUG stock should rise much further as PLUG continues to capitalize on its opportunities.

As of this writing, the author owned shares of PLUG stock. 

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