Stick With Plug Power for Long-Term Gains

Plug Power (NASDAQ:PLUG) stock has been one of my favorite small-cap growth stocks over the past several quarters. There are two simple reasons PLUG stock has earned that honor.

3d render image of hydrogen energy fuel cell from Plug Power
Source: Shutterstock

One, the hydrogen fuel cell (HFC) maker has huge growth potential over the next five to 10 years as enterprises globally more robustly adopt cost-effective, clean energy solutions.

Two, PLUG stock has been persistently undervalued relative to all that growth potential.

So far, this bull thesis on PLUG stock has played out perfectly. Year-to-date, PLUG stock is up 185%. Over the past year, shares are up 320%.

Those are huge gains. And while the big rally in PLUG stock may be short-circuited over the next few months by near-term valuation friction, there’s still a lot of upside potential left in this small growth stock over the next several years.

So my advice is simple. A storm is coming. Weather it. Buy on dips. And hold onto PLUG stock for the next few years. Big gains await patient investors. Here’s why.

Huge Long-Term Growth Potential

The Plug Power growth narrative is simple and compelling.

Demand for clean energy is stronger than ever. 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) worked hard over the past two years to go entirely straw-lessLevi Strauss (NYSE:LEVI) introduced a denim recycling programCoca-Cola (NYSE:KO) committed to significantly reducing carbon emissions in its supply chain.

However, these companies still serve shareholders, and “going green” isn’t cheap. To that end, enterprise demand for cost-effective, carbon-reducing solutions is soaring – and will continue to soar over the next few years.

Plug Power is at the epicenter of this rising demand, dominating a specialized niche in the cost-effective, clean energy world.

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 weakens; that isn’t the case with HFCs).
  • Longer life cycles (electric batteries need to be replaced every few years; HFCs don’t).

Demand for these cost-effective, zero-emission forklifts has soared recently. Plug Power’s revenues have risen nearly 200% since 2016. It will continue to soar for the next several years, amid robust tailwinds supporting more widespread enterprise adoption of cost-effective, clean energy solutions. As it does, Plug Power – which presently accounts for less than 1% of the global $30 billion forklift market – could sustain huge revenue and profit growth.

PLUG Stock Is a Winner

In the long run, PLUG stock is only going higher.

Management is guiding for billings to grow by nearly 40% per year to $1.2 billion by 2024. At the same time, they are guiding for scale to drive positive operating leverage, and for operating margins to go from negative in 2019, to nearly 18% by 2024, implying $210 million in operating profit.

If management executes against those targets – which seems likely, given the company’s current momentum, strong macro clean energy tailwinds, the clear value prop of Plug Power’s forklifts and the huge addressable market Plug Power is disrupting – then my modeling suggest that 50 cents in earnings per share is doable for Plug Power by 2024.

The Plug Power growth narrative won’t be done there.

Plug Power’s addressable market in materials handling is $30 billion. Management’s guide implies just $750 million in materials handling revenue by 2024, or just 2.5% market penetration. Meanwhile, Plug Power is also 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.

In sum, then, continued uptake of cost-effective, clean energy forklifts post-2024 and potential expansion into new hydrogen end-markets should sustain big growth at Plug Power all the way into 2030.

Indeed, 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.

Bottom Line on PLUG Stock

Plug Power sells cost-effective, clean-energy forklifts when enterprise demand for cost-effective, clean-energy solutions projects to soar over the next decade.

This simple reality implies huge growth potential for this small company over the next five to 10 years, especially since Plug Power has such small penetration into the huge forklift market.

Some of that growth potential is priced in today. As such, PLUG stock will likely run into some valuation friction over the next few months.

But not all of it is priced in, and PLUG stock still has huge upside potential over the next few years.

Patient investors here will be rewarded. So weather the coming storm. Buy into dips. And hold for the long haul.

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. 

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