We’re witnessing a historic moment for electric vehicles. The sector is absolutely flying, and some other adjacent clean-tech names, like Plug Power (NASDAQ:PLUG) stock are surging. Why is Plug Power soaring? Just look around its peer group.
Tesla (NASDAQ:TSLA) has hit record highs, with the stock soaring to $1,500 per share. With it, Elon Musk has turned into one of the world’s 10 wealthiest people. Meanwhile, Chinese electric vehicle leader Nio (NYSE:NIO) shrugged off a close shave with bankruptcy earlier this year; its shares are at new highs. Nikola (NASDAQ:NKLA) soared as well, and small-cap names like Electrameccanica Vehicles (NASDAQ:SOLO) and Ideanomics (NASDAQ:IDEX) are on the move.
Comparing Plug Power To Other EV Companies
It’s great that all these other green vehicle stocks are in the spotlight. That gives Plug Power plenty of positive attention as well. But at some point, the company will need to convert that publicity into a real profitable business.
Plug Power, for those unfamiliar with the specifics, is a leader in the hydrogen fuel cell market. In its history, the company has deployed more than 30,000 hydrogen fuel cell systems, and has built a hydrogen fueling network across North America. Plug Power focuses on industrial applications, particularly hydrogen forklifts for high-usage scenarios such as manufacturing and distribution sites.
All that to say that Plug Power is indeed on-trend with all the other hot electric vehicle stocks that we’re seeing right now. However, Plug Power isn’t aiming to sell vehicles to the general public; rather its customers are large businesses such as Walmart (NYSE:WMT) and Home Depot (NYSE:HD) that are putting the forklifts in warehouses.
This is an appreciably different market than what a Tesla or Nio is going after. Plug Power relies on getting tons of sales from a few customers. That’s a whole other thing compared to selling individual cars or trucks to people. Whereas Tesla and Nikola are about building an upscale consumer brand, Plug Power is working more behind the scenes.
Plug Power: A Troubled History
Plug Power has been publicly-listed for more than 20 years now, and its stock has been a fiasco for long-term investors. The stock hit a (split-adjusted) high of more than $1,000/share in the 2000 tech bubble, and has consistently underperformed since then. Though the rally this year has helped, Plug Power has still been a poor holding over longer-term time periods.
Plug Power’s low profit margins are a big part of the problem. It seems that the company has struggled to gain much customer adoption. Just two customers accounted for half of Plug’s sales in 2019. That gives the end customer a ton of bargaining power, and keeps Plug from achieving higher profitability metrics.
In fact, in Q1 of 2020, Plug Power managed to nearly double revenues year-over-year. Yet its loss on the quarter expanded to $26 million from $20 million the year prior. That is not the sort of operating leverage that you want to see.
PLUG Stock Verdict
Sector trades are fine as short-term plays. Much of the stock market’s performance is driven by your industry rather than individual company fundamentals when looking at near-term moves. When one company is enjoying huge success, it’s only natural that its peers will benefit as well.
At the end of the day, though, Plug Power is selling an established technology primarily for industrial uses. Plug Power has been marketing its systems, with fairly limited success, for many years. While it’s certainly good for sentiment if Tesla sells more electric vehicles or Nikola gets green trucks off the ground, neither directly says much about Plug Power’s sales outlook.
Many times, over the years, Plug Power has enjoyed a surge thanks to favorable publicity or trading sentiment. We’ve seemingly been on the cusp of a hydrogen breakthrough several times. Yet, each time, it has fizzled out. Plug Power will need to build a diversified customer pool that is willing to pay full price for its products. The company has managed to grow revenues aggressively recently, but it hasn’t moved the needle on the company’s bottom line. Unless that changes, Plug Power will continue to underperform other growth stocks.
It could be different this time for Plug Power. I wouldn’t deny that possibility. But traders are paying an awfully high price to bet on that idea. In all likelihood, Plug Power will disappoint yet again. Traders would be wise to cash in now and take profits while Power Plug stock is still trading at an elevated price.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.
