Despite the recent plunge of oil prices, Plug Power (NASDAQ:PLUG) stock is only down 1% in 2020. The company’s truck business has given investors a lot to like.
In a recent article for InvestorPlace, Larry Ramer points out that Plug Power is expecting to generate significant revenue. Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) are already likely on board. With this added revenue, Ramer estimates Plug Power should see a substantial increase in its margin. And that combination will potentially make the company profitable.
Assuming that Walmart and Amazon will each launch at least 1,000 fuel-cell trucks this year, I estimate that, conservatively, each vehicle will generate $10,000 of revenue for Plug Power. Assuming that’s correct, the deals will generate $20 million of revenue for Plug Power this year, versus the $236.8 million of gross billings that the company reported for 2019. If Plug Power’s gross margin on the truck deals is 40%, the deals could increase the company’s operating income by $8 million after it reported an operating loss of $7.5 million for 2019.
Is that enough to make PLUG stock a long-term buy? That depends if companies believe that now is the right time for hydrogen fuel cells.
Alternative Energy Is Moving Into the Mainstream
In the last 20 years, alternative energy or “green energy” has gone from theory to application. But this change of mind has more to do with cost than conscience. An article from the Climate Policy Info Hub points out that awareness about climate change is not high enough to trigger the widespread use of green energy. Additionally, many new and existing technologies are not being commonly used because the public is unfamiliar with them.
And There Is a Growing Market for Hydrogen
Prior to the dot-com crash, PLUG stock briefly surged to nearly $1,500 per share. That’s Amazon (NASDAQ:AMZN) territory. However, the unfamiliarity and impracticality of refining hydrogen into fuel made the promise of Plug Power unattainable.
That dynamic is changing. And hydrogen is gaining acceptance as a clean-energy alternative to battery-electric vehicles. But right now, the most inexpensive way to refine hydrogen into fuel is through natural gas reforming. This “blue hydrogen” is created with fossil fuels and releases carbon dioxide into the atmosphere. This reliance on traditional fossil fuels is an obstacle that Plug Power has to overcome.
However, despite this hurdle, many auto executives are bullish about hydrogen’s future. A 2017 survey conducted by KPMG found that many executives believed hydrogen fuel cells have a more promising long-term future than electric cars. The executives also agreed that fuel cells represent “the real (technological) breakthrough.”
According to Don Romano, the President of Hyundai Canada, hydrogen fuel cells are “the only (alternative energy) solution (for the trucking industry) because the heavier the load, the less viable (battery-electric vehicles) become.” Simply put, large trucks are ill-equipped to accommodate the giant batteries that would be required.
Nicolas Pocard, director of marketing at Ballard Power. (NASDAQ:BLDP) calls heavy-duty fuel-cell vehicles “the low-hanging fruit.” According to Pocard, a single hydrogen station can refuel a fleet of buses in a city once a day. Plus, light-duty hydrogen vehicles will also become viable as refining hydrogen becomes less expensive and cities add refueling stations.
Will Plug Power Make it to the Last Mile?
There is a cruel reality for Plug Power investors. With the launch of the company’s truck business, its hydrogen fuel cell technology may finally be poised to generate a great deal of revenue. But, just as hydrogen fuel cells may be gaining acceptance, large companies such as Nikola Motors, Hyundai (OTCMKTS:HYMTF), and even Toyota (NYSE:TM) are also developing in-house hydrogen fuel cell solutions for long-haul trucks.
That makes the next 18 months critical for PLUG stock. Oppenheimer analyst Colin Rusch has doubled his price target on the stock. And if the company can exceed expectations in the hydrogen-powered truck market, that could help it break out of a spiral of using shares to fund its operations.
With real clients in its pipeline and a stock price that has seemed to find a floor, Pluig Power is one growth stock that may be worth buying as a speculative investment.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.