Despite the heightening volatility in the stock market, shares of Plug Power (NASDAQ:PLUG) are holding up well. In general, with PLUG stock falling in the micro-capitalization category, the share price tends to break down.
So, why are investors still positive on Plug Power’s prospects? More importantly, how will PLUG stock perform amid the uncertainties ahead?
Plug Power reported a 6 cent per diluted share loss, an improvement from its 7 cent share loss in the same quarter last year. The leading provider of hydrogen engines and fueling solutions posted record gross billings in the fourth quarter at $94.5 million.
This is the largest in the company’s history. For the full year 2019, the company generated positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
Looking ahead, Plug Power expects to deliver on its 2024 targets. That is, it has a five-year plan of delivering $1 billion in annual gross billings, $170 million in operating income and $200 million in adjusted EBITDA by 2024.
What Are the Risks With PLUG Stock?
Plug Power’s financial liquidity is an ongoing risk for investors. In the last 12 months, the company burned $51.5 million on operating expenses. In the same period, it received $158.4 million through public offerings. Convertible senior notes added another $39.1 million to the balance sheet. And another $119.2 million came from borrowing long-term debt.
If the global economy worsens as the coronavirus from China continues to spread, its customers may delay or cancel orders. Conversely, investors may bet that the downturn does not last and that Plug Power’s expansion plans will play out successfully.
The company has a strategic partner with Engie’s hydrogen infrastructure. Together, the two firms offer a vertically integrated solution. So, the global agreement will enable the firms to supply, for example, a global refueling system.
Plug Power’s hydrogen fuel cells have an advantage over other methods of powering electric vehicles. For this reason, StreetScooter is working with Plug Power to develop electric trucks for DHL. Its 30-kilowatt ProGen engine will give these trucks plenty of range.
Although StreetScooter is delaying the program due to its own financial challenges, other customers may step in with orders. The company also recently launched a 125-kilowatt hydrogen engine. This engine provides enough energy storage to its electric trucks, making them ideal for delivery between warehouses and distribution centers.
Plug Power also won a $172 million multi-year contract — and this contract drew a lot of attention. The customer will use GenDrive fuel cell power at 30 sites in the next two years. Plug Power now has 50 sites currently using this solution.
Growing Demand for Plug Power’s Solutions
In the fourth quarter, the company secured its third “pedestal” customer. It will deploy 12 greenfield retail distribution centers that collectively use over 2,000 GenDrive units. Chances are good that the customer will order more units to support this hydrogen infrastructure. Oh, and this deal will add over $50 million in gross billings for Plug Power.
For the year, the company forecast $300 million in gross billings. As for the coronavirus outbreak, the company did not expect any material impact on results.
On its conference call, management said that “We’ve seen no changes with our customers. Like everybody else, we’ll continue to monitor, but to us, the key items have been a supply chain, and it seems to be back up and functioning and beginning to accelerate.”
Valuation and My Takeaway on PLUG Stock
Eight analysts who have a price target on PLUG stock think that shares are worth $5.63, implying over 50% of upside from its current price.
Yet investors should exercise caution. The company’s growth rate is on par with the industry and below that of the S&P 500 average.
Despite the modest growth expectations, PLUG stock is holding up for now. The company will need to curb costs and grow revenue. If positive earnings come sooner than expected, the stock is certainly a good contrarian bet.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. As of this writing, Chris did not hold a position in any of the aforementioned securities.