On Nov. 5, 2020 America may still be waiting for the final results of the presidential election, but that shouldn’t prevent investors from getting some results that they’ll really like. That’s the day Plug Power (NASDAQ:PLUG) reports its third quarter 2020 earnings. If the company continues on its current trajectory, it could justify the recent rally on PLUG stock.
Plug Power has made quite the turnaround in the past 18 months. A year ago when I was writing about PLUG stock, wide-spread hydrogen acceptance seemed like it was still some time away.
Plug Power was a niche player in the clean energy market. However they did have something that many speculative stocks lacked, revenue. And more importantly, Plug Power is posting growing revenue.
In 2019, the company brought in $223.75 million in revenue. Despite the pandemic, Plug appears to be in an excellent position to post a year-over-year increase in revenue.
Plug Power is not yet profitable. However, the trend appears to finally be moving in the right direction. After posting negative earnings per share of 38 cents in 2019, the company is on track to deliver negative 28 cents per share in 2020.
But that’s just the what. The question is why?
Clean Energy Momentum and PLUG Stock
Luke Lango makes the case that the clean energy wave is here. One reason that this is the case is that renewable energy is becoming cost-efficient to produce.
That’s why voters really shouldn’t pay much attention to the debate about whether the United States will be banning fracking and fossil fuels. In reality the two parties offer a distinction without a difference. Both parties have a vested interest in seeing renewable energy continue on its current trend.
And because it serves a specific niche, hydrogen is elbowing its way into that conversation. Electric vehicles (EVs) have been getting the attention of investors in 2020, and with good reason.
However (as Lango writes about in detail) hydrogen isn’t competing with battery powered EVs. Rather hydrogen is the better renewable energy source in heavy usage and long-range situations. And Plug Power is the undisputed leader in the materials handling market.
Companies such as Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) already use Plug Power fuel cells to power the forklifts in their warehouses. However, despite the company’s leadership in this growing market, investors were not excited about PLUG stock. That is changing.
Plug Is Taking Control of Its Supply Chain
Simply put, Plug Power is in the beginning stages of becoming a hydrogen supplier. The first steps have been through the acquisitions of United Hydrogen and Giner ELX. The plan is for Plug Power to control all stages of the hydrogen life cycle. That would remove what currently is an obstacle for long-term hydrogen acceptance.
The question for investors is how much of tomorrow’s performance are they paying for today?
When I wrote about PLUG stock last month, my concern was not in the long-term future of hydrogen. But in the short term, hydrogen requires natural gas to be produced. And the price of natural gas could be going up depending on the outcome of the election.
That narrative remains in place. The inroads that Plug Power is making to become a hydrogen supplier are interesting. However, Plug Power will only be able to supply a fraction of the hydrogen that will be needed for the kind of growth being forecast.
Is PLUG Stock a Buy at Its Current Level?
Lango estimates that PLUG stock could be worth $35 per share by 2029. But that’s a long way away and the stock is currently sitting at around $16. Plus, for all the positive news stemming from the company’s earnings, the company’s negative operating cash flow (on a trailing 12-month basis) is at a record level.
That’s why I’m in agreement with another InvestorPlace writer Alex Sirois who says wait until the company delivers revenue before making your decision.
The good news you won’t have much longer to wait. The future of hydrogen appears to be a reality. But that doesn’t mean you have to pay for that growth today.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.