In early February 2020 — before the coronavirus pandemic broke out of China and shut down the global economy — I laid out two simple reasons why Plug Power (NASDAQ:PLUG) stock was set to double in 2020.
Four months and one global pandemic later, PLUG stock has indeed doubled. Year-to-date, shares of the leading hydrogen fuel cell (HFC) maker are up 143% to their highest levels since 2014.
A recent acquisition double, as well as those two reasons I laid out in February.
First, the timing is right for Plug Power’s core materials handling business — which is focused on creating HFC forklifts under the GenKey brand — to achieve mass and mainstream adoption in warehouses across America. Second, the addressable market here is huge, and Plug Power has visible runway to significant revenue and profit growth over the next several years as its forklifts reach ubiquity.
So, is it time to take profits?
Far from it, actually. This big rally in PLUG stock may actually just be getting started — and here’s why.
A Strong Growth Narrative
The Plug Power growth narrative is simple and compelling.
Demand for clean energy is stronger than ever. And for the first time in U.S history, sustainability has become the norm across enterprise America — with small and large businesses alike aggressively pushing to reduce their carbon footprint.
For example, Starbucks (NASDAQ:SBUX) has worked hard over the past two years to go entirely straw-less. Levi Strauss (NYSE:LEVI) has introduced a denim recycling program. Coca-Cola (NYSE:KO) has committed to significantly reducing carbon emissions in its supply chain.
However, these companies still serve shareholders. And as such, their sustainability efforts need to be cost-effective and preserve profits. Consequently, enterprise demand for cost-effective, carbon-reducing solutions is soaring today — and will continue to soar over the next few years.
That said, insert Plug Power. The company makes best-in-breed hydrogen-powered forklifts which — unlike electric battery forklifts — will help companies cut carbon emissions, while saving costs and optimizing warehouse efficiency. Simply consider that Plug Power’s forklifts, relative to electric battery forklifts, have:
- 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).
It should be no surprise, then, that demand for Plug Power’s cost-effective, zero-emission forklifts is soaring, alongside soaring demand for cost-effective, carbon-reducing enterprise solutions.
Additionally, Plug Power’s revenues have risen nearly 200% since 2016 — and this is just the beginning.
PLUG Stock to $35?
My base case scenario for Plug Power says that PLUG stock is worth about $7.50 today.
That base case scenario lines up with management’s five year guide, which calls for $1.2 billion in revenues by 2024 and $210 million in operating income. For context, that essentially means Plug Power will leverage clean energy demand tailwinds to drive roughly 40% revenue growth per year over the next five years, huge gross margin expansion from 11% today to 30% by then and additional positive operating leverage thanks to increased scale.
Under those assumptions, my modeling says that 50 cents is an achievable earnings per share target by 2025. Based on a growth-stock average 27-times forward earnings multiple and a 10% discount rate, that implies a fair 2020 price target for PLUG stock of $7.50.
However, there is a pathway here for PLUG stock to soar to $35 over the next decade.
Plug Power’s addressable market in materials handling is $30 billion. That said, management is guiding for $750 million in materials handling revenue by 2024. That represents huge growth from today, but also represents just 2.5% penetration into the market.
In other words, post-2024, Plug Power should sustain big growth in its materials handling business thanks to clean energy demand tailwinds.
Not to mention, the company is expanding its addressable market to include passenger vehicles, port applications and large-scale stationary. Those markets are much bigger — like, $300 billion addressable market big.
Put it all together, and it’s easy to see why Plug Power can and should sustain huge growth both from 2019 to 2024, and from 2024 to 2030.
Assuming so, my modeling suggests that $1.75 in earnings per share is doable for Plug Power by 2030. And a 20-times forward earnings multiple on that implies a 2029 potential price target for PLUG stock of $35.
Bottom Line on PLUG Stock
Plug Power is one of the most exciting companies on Wall Street today. PLUG stock — up 143% year-to-date — reflects that reality.
The Plug Power growth narrative — centered around increased adoption of cost-effective hydrogen solutions across the enterprise — is just getting started. So is this rally in PLUG stock.
Therefore, embrace recent strength in this up-and-coming growth stock. And long-term, there remains tremendous upside potential.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long SBUX.