Plug Power (NASDAQ:PLUG) is one of the small cap tech stocks I’m most excited about in 202. Because of its enormous upside potential and tremendous visibility to reach that potential PLUG stock will be a bigtime winner this year.
Long story short, Plug Power makes hydrogen fuel cells (HFC), which are devices that convert hydrogen and oxygen into electricity. They are similar to batteries in that they are a zero-emissions energy source, but different in that that they derive their power from hydrogen, not from an outlet.
Thus far, battery tech has prevailed over hydrogen tech for various reasons, especially in the commercial car market. But, hydrogen tech is starting to gain significant traction in the materials handling industry, where things like HFC forklifts are becoming more and more popular as companies are increasingly attracted to HFC’s cost efficiency.
At present, Plug Power has strong momentum in deploying fuel cells into the materials handling industry. That’s why Plug Power stock more than doubled in 2019. The company should sustain this momentum in 2020 and beyond, thanks to increasing pressure on companies to find cost-efficient ways to reduce carbon emissions.
As they do, the company’s revenues and profits will continue to move higher. So will Plug Power stock, which the numbers imply has a good opportunity to double yet again in 2020.
The Timing Is Right
Take one look at the long term stock price chart for Plug Power, and you might think this rally is just another head-fake in a company that has struggled to grow over the past several years. But, that analysis entirely misses the reason why this time is different for Plug Power.
That reason is timing. Before, the timing wasn’t right for Plug Power to drive significant uptake of HFC forklifts in the materials handling industry. Now, the timing is perfect.
As Plug Power CEO Andy Marsh wrote in an email to InvestorPlace: “Demand for clean energy is stronger than ever. Large companies are hungry to expand operations with productivity and revenue-enhancing technology, but are acutely aware of the need for sustainable solutions and growth.”
In other words, there’s a lot of pressure out there — both from regulators and consumers — on big companies to reduce their carbon footprints. But, doing so is a cost-intensive process. So, companies are increasingly looking for cost-effective ways to reduce carbon emissions.
That’s where Plug Power forklifts come in. They provide companies a cost-effective way to reduce carbon emissions through:
- Shorter charging times (electric batteries take about 15 minutes to recharge; HFCs take fewer than 5 minutes).
- Reduced free space requirements (you need a ton of space to store electric batteries; you need very little for HFCs).
- More efficient power output (as electric batteries drain, operation power weakness; that isn’t the case with HFCs).
- Longer life cycles (electric batteries need to be replaced every few years; HFCs don’t).
“Plug Power’s solutions help some of the biggest companies in the world achieve [sustainability] goals without impacting their bottom line,” said Marsh. Consequently, as companies increasingly pursue cost-effective carbon reduction measures over the next few years, they will increasingly turn to Plug Power to deploy HFC forklifts in their warehouses.
The Numbers Look Good
The first big reason to like Plug Power stock here is that the timing is perfect for exponential growth in the company’s materials handling business. The second big reason is that the numbers support significant upside from current levels.
There are 6 million forklifts in the world. Plug Power has deployed only 30,000 fuel cells into that market thus far. So, Plug Power has a mere 0.5% penetration rate into the forklifts market, but, the company has been growing very quickly.
Plug Power just landed a third anchor customer in addition to Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN), and has all the right tailwinds on its side. Consequently, management’s target for 125,000 fuel cell deployments by 2024 — accounting for only 2% of the total forklift market — seems entirely doable.
If they hit that 125,000 target, then management believes that total company revenue will stand around $1 billion.
Further, on margins, Marsh said: “Plug Power will be EBITDA break even at $240M in revenue. For every dollar of revenue post $240M, approximately .3 will flow to EBITDA.”
Do that math on that. $1 billion in total revenue less $240 million in break-even revenue equals $760 million in excess revenue. 30% of that equals more than $200 million in EBITDA.
Assuming that happens, my modeling pegs 50 cents as a realistic 2024 earnings per share target for this company. Based on a 16-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for the stock of $6.
Bottom Line on PLUG Stock
The timing is finally right for Plug Power. Over the next few years, increasing pressure on companies to find cost-effective ways to reduce carbon emissions will compel many of these companies to turn towards Plug Power’s HFC forklifts. As they do, Plug Power’s revenues, profits, and stock price will all continue to march significantly higher.
As of this writing, Luke Lango was long PLUG.