Plug Power (NASDAQ:PLUG) stock soared to decade highs in early August after the hydrogen fuel cell (HFC) maker reported second quarter earnings that smashed expectations and broadly underscored the long-term bull thesis on PLUG stock.
The long-term bull thesis is that Plug Power — once just a company that provided highly-efficient, low-emission HFC forklifts to the materials handling industry — is leveraging new products and strategic acquisitions to attack new business verticals, expand its addressable market and ultimately turn into an all-in-one hydrogen energy powerhouse.
This transition warrants the 250% gain PLUG stock has seen in 2020.
It also warrants further gains in Plug Power stock over the next several months, quarters and years.
So while I can’t blame anyone for profit-taking after such a huge rally, I think sticking with the rally is the right call. This is a long-term winner in the top of the first inning of a very promising growth narrative. And that fact still isn’t fully priced into PLUG stock.
Here’s a deeper look.
Plug Power is Gaining Momentum
Plug Power’s strong second quarter earnings report underscored that the HFC maker is gaining significant momentum in its core materials handling business.
Billings in the quarter rose 24% year-over-year to a record-high $72.4 million, on the back of 2,800 GenDrive fuel cell system deployments (another record). Plug Power has now deployed 35,000 GenDrive fuel cell systems to date, 5,000 of those in 2020.
This huge delivery volume in 2020 speaks to two things.
One, enterprise demand for cost-efficient, clean energy solutions — such as GenDrive for use in forklifts — is soaring. Two, this demand is recession-resilient, and has not wavered in the face of weak economic activity over the past few months.
Of note, demand here isn’t coming from small players. It’s coming from the big guys. Walmart (NYSE:WMT). Amazon (NASDAQ:AMZN). Kroger (NYSE:KR). Those companies all count themselves among Plug Power’s customers.
That’s important because, collectively, the likes of Walmart, Amazon and Kroger own most of the warehouses and forklifts in North America. Early partnerships with them gives Plug Power a visible and compelling opportunity to up-sell more GenDrive systems until those big players are full-up on low-cost, clean energy forklifts.
In it of itself, this robust and rapidly expanding HFC materials handling business is enough to sustain big growth at Plug Power over the next 5 to 10 years.
Expanding into New, Far Bigger Verticals
The most exciting part of the Plug Power growth narrative, however, isn’t this robust and rapidly expanding HFC materials handling business.
It’s all of the other hydrogen markets that Plug Power is just now starting to attack.
Long story short, over the past several quarters, Plug Power has leveraged its expertise in creating HFCs for use in the materials handling industry, to launch new HFCs designed for use in other end-markets that could also benefit from hydrogen technology. This includes the 125kW ProGen and 30kW ProGen hydrogen engines. The former is designed for use in heavy-duty trucks. The latter designed for use in delivery vans.
It also includes the GenSure HP platform, which is designed to be a low-cost, clean energy alternative to power data centers.
At the same time, Plug Power has made multiple acquisitions — United Hydrogen and Giner ELX — to become a more vertically-integrated hydrogen company that controls the entire hydrogen energy life-cycle, from generation, liquefaction and distribution, to design, construction, and operation.
All in all, Plug Power is in the top of the first inning of turning into much more than just a HFC forklift company. Plug Power is transforming into all-in-one hydrogen energy powerhouse.
That’s big, because that essentially expands Plug Power’s addressable market from the $30 billion materials handling market, to the combined $350 billion materials handling, automobile and large-scale stationary markets.
This greater than 10-fold increase in addressable market is why PLUG stock can and will continue to power higher.
Plug Power Stock isn’t Fully Valued
PLUG stock is up 250% year-to-date.
Yet despite this huge rally, PLUG stock still isn’t fully valued.
In the quarter, management reaffirmed its long-term guide for billings to grow by nearly 40% per year to $1.2 billion by 2024, and operating profits to rise to north of $200 million.
That represents huge growth from where the company sits today. But Plug Power won’t be done growing in 2024.
Between now and 2024, rapid uptake of HFCs in the materials handling industry will power most of Plug Power’s growth. Post-2024, Plug Power sill sustain big growth on the back of rapid uptake of HFCs in every other industry, namely the large-scale stationary and automobile end-markets.
To that end, I think Plug Power isn’t a 5-year-growth company. It’s a 10-year-growth company. That can sustain 10%-plus revenue growth for the next decade. While simultaneously leveraging economies of scale to drive consistent margin expansion. And power 15%-plus profit growth.
Assuming so, my modeling suggests that $1.75 in earnings per share is doable for Plug Power by 2030. A 20-times forward earnings multiple on that implies a 2029 potential price target for PLUG stock of $35.
Discounted back by 8.5% per year, that implies a 2020 price target for PLUG stock of nearly $17.
Bottom Line on PLUG Stock
After such a huge rally, I don’t fault anyone for doing some profit-taking on PLUG stock here.
But I think this stock is only going to keep on heading higher.
The growth drivers remain vigorous. The fundamentals are only getting better. PLUG stock still isn’t overvalued. And the macro-market backdrop remains favorable.
According to my modeling, $15-plus prices are likely within the next few months.
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 AMZN.