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Plug Power Seems Overvalued Until it Produces Profits

PLUG stock is up on recent analyst reports, but the company won't make profits anytime soon

Plug Power (NASDAQ:PLUG) has skyrocketed almost 300% ever since Barclays came out with a report on the stock in early June. On June 4, PLUG stock shot up almost 20% when the report came out saying it was worth $7 per share. As of July 8, the stock is well above that price at $9.38 per share.

Image of a man driving a forklift in a warehouse.
Source: Halfpoint/

After this, other analysts coming out with Buy ratings on Plug stock as well. For example, on May 14, H.C. Wainwright raised its target from $6 to $14 on June 24. In addition, Canaccord Genuity raised its target price on the stock to $8.50 on the same day.

Morgan Stanley also raised its price target on the stock from $6 to $8.50 on June 30. They cited the company’s “rapid growth.” That may be true, but no one seems to be talking about the future profitability of the company.

No Near-Term Profits in Sight for Plug Power

The problem is Plug Power has no near-term prospects of making money. In fact, the company does not even talk about when it will be profitable. In his latest letter to shareholders, the CEO “reiterated” guidance for 2020. But this was about making sales, not profits.

To get a sense of the company’s history, you watch this analyst, David Duncan, in his YouTube review of Plug Power stock, “Should You Buy Plug Power Stock in 2020.” You will walk away with two major points. First, the company has never made any money. And second, it seems to constantly finance its operations with dilutive equity and debt securities. These only serve to lower the value of existing shareholders’ percentage stakes in the stock.

For example, the company plans on making $1.2 billion by 2024. That is 4 times the revenue it currently produces. The CEO said in his letter that they expect to achieve $300 million in “billings” this year. Billings are not necessarily revenue.

In fact, in 2019, produced just $230 million in revenue and lost $85.5 million. Eight analysts polled by Seeking Alpha expect the company to make $292 million in revenue and lose 34 cents per share in 2020. That loss will be about $100 million to $105 million, depending on the number of shares outstanding by year-end.

Plug Power Expects to Be EBITDA Positive in Several Years

Despite having no profits, the company expects to be EBITDA (earnings before interest, taxes, depreciation and amortization) profitable by 2024. But so far, it is not close to achieving that measure. Its Q1 results, Plug Power lost $6.5 million in EBTIDA.

However, Plug Power recently completed the acquisition of two companies: United Hydrogen Group, and Giner ELX. These companies will enhance Plug Power’s abilities to generate, liquify and distribute hydrogen throughout the U.S.

More importantly, the company said it now expects to make $250 million in EBITDA profits by 2024 with these two companies. This is up from its original forecast on Sept. 18, 2019, that it would make $200 million in EBITDA by 2024.

As one analyst points out, though, the company has a long history of over-promising and under-delivering.

What To Do With PLUG Stock

One thing to note is that Plug stock does not pay a dividend. So investors are not getting paid to wait until profits arrive.

Another thing to understand is that EBITDA profits are not the same as real net income profits or cash flow. EBITDA profits, for example, are not sufficient to allow the company to pay dividends.

Several major cash flow outflow items it does not include are capital expenditures, interest expenses, changes in working capital, and tax expenditures. These four items are major cash outlays even for companies with net income profits.

For example, Plug Power had negative cash flow from operations of $14 million in 2019. And that was even before $240 million in capital expenditures it made during the year. In addition, the 2019 EBITDA was negative $42.6 million, according to Seeking Alpha. That is a long way from positive $250 million in just a few years.

Therefore, I suspect most investors will have a chance to buy PLUG stock at a much lower price sometime in the next several years. Look for these opportunities with a view to take advantage of dips in Plug stock.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide, which you can review here.

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