Not long ago, Plug Power (NASDAQ:PLUG) looked hopeless. The company’s efforts with hydrogen energy was not getting much traction and the losses continued to pile up. From 2000 to early 2020, shares went from over $1,000 to a measly $3 in late 2019.
But of course, this year has been a gamechanger for the company. Plug Power has suddenly become one of the hottest growth stocks on Wall Street. Note that the price is $23 and the market capitalization is at a $9.7 billion.
It’s true that – in the past – there have been some rallies, but they all quickly fizzled.
So then what is different this time? There are a variety of factors at work in terms of the strategy of the company and the improving fundamentals of the industry.
Thus, let’s take a look at some of the main ones – and why the bull case should not be temporary.
The Business Model
When it comes to the global energy market, there has always been a challenge to get adoption. One of the biggest issues: the costs of creating a new infrastructure.
This is why it was smart for Plug Power to rethink its strategy and focus on the niche opportunity of the material-handling market – that is, forklifts for warehouses. Some of the advantages for customers include:
- Hydrogen fuel cells maintain constant power at all times, even with freezer applications. By comparison, battery-powered trucks lose their speed over time.
- There is no need to change and manage batteries. Hydrogen fuel cells also allow for more room on the factory floors (since there are no charging rooms).
- There are zero harmful emissions.
- Hydrogen fuel cells do not contain hazardous materials, which is in contrast to batteries.
In light of this, Plug Power has seen adoption from a myriad of major customers. Just some include Amazon (NASDAQ:AMZN), Kroger (NYSE:KR), FedEx (NYSE:FDX) and Walmart (NYSE:WMT). For example, during the third quarter, the number of GenDrive forklifts deployed jumped by more than 130% on a year-over-year basis.
The Market Opportunity in Plug Power Stock
In the transportation market, the EVs (Electric Vehicles) are getting much of the attention. This is driven primarily by the huge success of companies like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO).
But the fact is that hydrogen fuel cells are likely to be a massive opportunity, too. After all, the warehouse market is growing quickly because of the megatrend of e-commerce.
Yet hydrogen fuel cells can have other important applications. To this end, they can be effective for backup energy sources for utilities and data centers. Hydrogen will also be useful cross-country transportation.
Note that companies like Toyota (NYSE:TM) have been working with Plug Power to explore the potential of the technology. In fact, Plug Power is building an end-to-end infrastructure for the emerging hydrogen economy.
For example, the company is developing five green hydrogen plants. There have also been key partnerships with major players in the renewable energy markets like Brookfield Renewable (NYSE:BEP) and Germany’s Apex Energy.
But even in the materials handling market, the market is massive. It’s estimated at a whopping $350 billion.
Politics
Joe Biden’s win for the presidency is certainly a positive for Plug Power. He has a $1.7 trillion 10-year plan for spending on renewable energy. A big part of this will be creating a green infrastructure.
True, if the Senate remains with the GOP, it seems like an uphill battle to get this program enacted. But there will still likely be green programs that do get implemented, say through other legislation. President-elect Biden will also be in a position to change policies through his control of federal agencies.
Besides, the global market for renewable resources will continue to grow. This should be a nice lever of growth in the coming years, especially since a relatively small amount of Plug Power’s revenues come from overseas markets.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
