Hydrogen fuel cell maker Plug Power (NASDAQ:PLUG) has been one of Wall Street’s brightest stars for about four years now — a stretch in which PLUG stock has soared almost 15x from a buck and change back in late 2016, to nearly $15 today, on the back of growing enterprise demand for cost-effective clean energy solutions.
Amid this massive rally, the bears have come out of the woodwork, and they’ve been quite vocal.
Plug Power isn’t profitable. Never has been. Insiders are selling. The company’s hydrogen tech isn’t that good. The end-market applications are niche. Management has a long history of over-promising and under-delivering.
I’ve heard them all — and I don’t believe any of them have much substance.
Zooming out, the big picture here is that Plug Power today is pioneering a new era of cost-effective hydrogen technology for use in industrial end-markets, at a time when demand for cost-effective clean energy solutions is soaring thanks to immense sociopolitical pressures. Simultaneously, Plug Power is just starting to test its industry-leading hydrogen tech in different, much bigger end markets (like automotive), and potential upside therein is enormous.
As the company embarks on this exciting journey over the next several years, revenues will soar, allowing for scale to show up for the first time ever, and by the same token, allowing profits to show up for the first time ever, too (see: Economies of scale).
Net net, ignore the bears. Buy Plug Power stock. This is a long-term winner.
Clean Energy Demand Soaring
Enterprise demand for clean energy is stronger than ever — and it’s only going to get stronger and stronger over the next decade.
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-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.
The writing is on the wall. Corporate America is obsessed with becoming “sustainable”.
This obsession isn’t going to moderate anytime soon. If anything, it’s going to accelerate, as green and sustainable become the norm, and consumers increasingly pivot towards brands, products and services which are socially and environmentally positive.
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.
Fortunately, PLUG stock finds itself at the epicenter of this clean energy megatrend.
PLUG Stock: Leading Hydrogen Solution for Materials Handling
There are many types of clean energy solutions out there.
Solar. Wind. Battery. To name a few.
Hydrogen belongs on that list. And, like the others, it’s not a “one size fits all” solution. Instead, hydrogen tech — like solar tech, wind tech, and battery tech — has its advantages and disadvantages. Some advantages include that hydrogen recharges faster than batteries, lasts longer and has a longer battery shelf life. Disadvantages include a lack of hydrogen charging infrastructure out in the open road.
Plug Power has figured out that one way to maximize hydrogen’s advantages — while minimizing its disadvantages — is to apply the technology to high-usage, always-on industrial end markets that don’t have huge travel requirements, like warehouses.
Specifically, Plug Power has built 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, on the back of big partnerships with some of the largest warehouse operators in the world, like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT).
Demand 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 through this industrial end-market alone.
Hydrogen TAM Expansion
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 Power can and will continue to power higher.
Big Upside for Plug Power Stock
In the long run, Plug Power 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.
Plug Power won’t be done growing by 2024.
The company’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.
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.
Bottom Line on Plug Power Stock
Ignore the critics and the skeptics. PLUG is a long-term winner that’s got plenty of fuel left in the tank for bigger gains over the next few years as the clean energy wave ripples across corporate America.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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