After years of disappointment, Plug Power (NASDAQ:PLUG) finally got its act together. And PLUG stock responded in kind.
In February, PLUG cleared $6 for the first time in almost six years. At that high, the stock had gained nearly 400% since the end of 2018. And it was a notable change in performance that drove the gains.
It began with fourth-quarter 2018 results in February of last year. Plug Power delivered positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the quarter. As Bloomberg noted at the time, incredibly that was the first time Plug Power had achieved even that modest level of profitability in some 20 years.
Last year marked another milestone, as the company delivered a full-year adjusted EBITDA profit for the first time. The $9.2 million generated was notably better than original guidance for a breakeven result — another step forward for a company with a long history of overpromising and underdelivering. Guidance for 2020 looks solid as well.
And then the bottom fell out of the market, and the economy, just as Plug Power finally got its act together. With the stock back below $3.50, the selloff does seem to provide a long-term opportunity. But the coronavirus crisis does raise significant risk — and near-term trading is going to be volatile. I’ve become increasingly bullish on PLUG stock over the past 18 months, but I’m not in any rush to try and time the bottom here.
The Coronavirus Hit
The world has changed so quickly that when Plug Power held its fourth-quarter conference call on Mar. 5 — less than three weeks ago — chief executive officer Andy Marsh actually told investors that “we don’t expect any revenue impact” from the virus for 2020.
Marsh did note potential supply chain issues in sourcing components from China but said on the call that suppliers were back up and running.
Plug Power hasn’t updated its outlook or pulled its guidance as have other companies of late. But it’s certainly safe to assume that there is going to be some impact to 2020 results.
Plug Power had said it expected billings growth this year of over 25%. Billings are defined as revenue plus the change in deferred revenue. It’s essentially a measure of how much business the company brought in, even if some of that business is not recognized as sales during the current period.
Some of that growth needed to come from new customers. And it’s simply going to be difficult to transact any kind of business in the short term.
There’s a hit to PLUG stock as well. This clearly is a “risk-off” market. And Plug Power, even with improved performance, remains a high-risk stock.
Again, it’s a serial disappointer. As one skeptic has noted, the company is driving its revenue growth through vendor financing, a potentially risky strategy.
Plug Power was able to raise capital via an equity offering in December (at $2.75 per share), so near-term bankruptcy is unlikely. But there are risks here. And investors right now do not appear willing to take on any sort of risk.
The Case for PLUG Stock
That said, from a long-term standpoint, PLUG is getting more intriguing. With PLUG stock above $5 last month, I worried that the stock was getting a bit ahead of itself.
Back below $3.50, risk/reward does look more attractive. Plug Power has reiterated its targets for 2024, which suggest $1 billion in revenue. I’ve argued those targets conservatively suggest fair value of $7 to $9 per share. With the share price decline, investors now can expect to double their money, or better, if Plug Power hits its targets.
There’s one more consideration: Plug Power’s customers. Walmart (NYSE:WMT) and Amazon.com (NASDAQ:AMZN) are the two biggest customers. According to Plug Power’s Form 10-K with the U.S. Securities and Exchange Commission, the two largest customers drove almost exactly half of 2019 sales.
Procter & Gamble (NYSE:PG) is another key customer. And per analyst commentary on the Q4 call, Home Depot (NYSE:HD) was the customer with which Plug Power signed a $172 million contract in January.
That’s about as strong a base a company can have during this crisis. Walmart and Amazon in particular are seeing a short-term bump in sales, which should drive some incremental revenue for Plug Power as well.
In other words, the news might not be as bad as investors might fear, even if the short-term crisis leads to a mid-term recession.
No Rush
Of course, those fears can push PLUG stock lower. This still is a company posting losses on a GAAP (generally accepted accounting principles) basis. Even if major customers hold up, new customer acquisition is going to get crushed and smaller existing customers may pull back.
There is upside here for investors willing to take on risk. But that’s true across the market right now; plenty of stocks will double in a few years if multi-year targets are hit. And while Plug Power’s 2019 was impressive, it doesn’t completely erase the previous 19 years during which time Plug Power was one of the most disappointing names in the market.
Investors willing to try and time this bottom have choices. PLUG stock is an interesting one. I don’t believe it’s close to the best one, at least not yet.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.
