Renewable energy equities are soaring this year and Plug Power (NASDAQ:PLUG) is participating in that fun. PLUG stock, though it’s 21% off its recent highs, still returned a staggering 375.63% year-to-date.
Plug Power’s turnaround is remarkable, particularly when considering the stock labored around $4 for much of the second quarter. That price action is reflective of growing enthusiasm for the hydrogen fuel-cell market, a clean energy concept often overshadowed by wind and solar.
Wall Street is taking note of the compelling opportunities Plug could capitalize on going forward.
A September conference held by the company, included a presentation hi-lighting “multiple growth opportunities driven by achievements in scale, technology and customer relationships,” according to Morgan Stanley analyst Stephen Byrd.
“We now factor in a higher [long term] growth rate,” Byrd wrote, “driven by our increased bullishness on Plug’s multiple addressable markets.”
PLUG Stock: Hydrogen Moving Beyond Hopium
For some time, hydrogen was considered a vexing proposition in the renewable energy space. It simply wasn’t viewed as accessible and tangible as solar and wind.
As noted above, hydrogen often goes overlooked relative to other clean energy concepts. Even former Vice President and Democratic nominee Joe Biden’s climate plan mentions hydrogen just once.
Fortunately, the hydrogen economy is forging ahead and Plug Power is flipping the script with its electrolyzer technology, which creates hydrogen through a water-splitting process.
That sounds like a lot of science, but in plain English, Plug could eventually build an incredibly lucrative market because hydrogen cells are a possible alternative to the batteries that power electric vehicles. Those batteries need to be charged, a process that’s not as efficient as filling a tank with hydrogen. For investors, that’s something to mull as EV sales surge.
Plug Power doesn’t have to look far for opportunity. A recent study by McKinsey confirms the U.S. is a leading hydrogen market and that there are already more than 7,600 fuel cell electric vehicles (FCEV) on the road here today.
“In addition, the U.S. is a global leader in the development of fuel cell applications that compete with incumbent technologies,” said McKinsey. “For example, more than 25,000 fuel cell-powered material handling products, such as forklifts, are operating in warehouses and distribution centers across the country.”
That’s just one example, but the McKinsey data underscore an important point for those mulling a position in PLUG stock: There are uses for hydrogen beyond passenger vehicles and there is market demand beyond the U.S. For instance, China is planning $17 billion worth of hydrogen investments through 2023.
Ambitious Scenarios for Plug Power
Much of the ebullience recently assigned to renewable energy equities, PLUG stock included, is attributable to politics, meaning these names tend to reflect Biden’s poll numbers.
On that note, a Biden win and a blue wave – Democrats winning the White House and Senate while keeping the House majority – is baked into these names.
Good news: Plug Power and other clean energy stocks are delivering stout returns with a Republican in the Oval Office.
Moreover, corporate and local adoption, not federal mandates, are already proving to be the driving forces of renewables growth. Specific to Plug Power, there are several positive, longer-ranging catalysts to consider.
First, FCEVs could reach price parity with gasoline-powered automobiles sometime between 2025 and 2030.
Second, there are multiple industrial applications for hydrogen power, including chemicals manufacturing and steel production.
Third, as McKinsey notes, hydrogen can be used not only as a backup for the traditional power grid, but, speaking of the grid, hydrogen can plug some of the intermittent gaps on grids depending on solar and wind energy.
Bottom line: Plug Power isn’t going to move up in a straight line, but it’s not a politically dependent as some investors may think and its end markets extend beyond automobiles and those are positives for long-term investors.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
