Plug Power (NASDAQ:PLUG) presents investors with a key question at the moment: Can PLUG stock really keep going higher?
After all, following a 15% bounce on Wednesday, PLUG now has rallied an incredible 657% so far in 2020. Out of some 5,000 stocks on U.S. exchanges, Plug Power stock has posted the 18th best performance so far this year. Among some 1,800 stocks with a market capitalization of at least $2 billion, it’s in 5th place.
Certainly, the news delivered by Plug Power so far in 2020 has been positive. Growing optimism toward alternative fuels has helped as well. Still, it’s tempting to believe that, given its sheer size, the rally has gone too far — or at least far enough.
But I don’t believe that’s the way to look at PLUG stock or other big 2020 winners. Indeed, this year, assuming that a big rally somehow ‘has’ to end has been a way to miss out on even more gains.
PLUG itself proves it. The stock pulled back sharply last month; some investors no doubt saw the move as a much-needed correction. The stock has rallied another 60% since finding its footing. Meanwhile, this week’s earnings report shows that the story here is nicely on track.
So, yes, PLUG stock has posted an incredible rally so far this year. But I believe the stock, from a long-term perspective, is just getting started.
Blowout Earnings
When I recommended investors buy the dip in Plug Power stock, one of the key points I made was that Plug Power had become a different company.
After all, coming into 2020, PLUG had an intriguing bull case. It also had a very simple bear case: the company had been a serial disappointer. Targets were always pushed out or simply missed. It took over two decades for the company to generate a single quarter of positive Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). Plug Power stock would find big rallies from time to time. Each time, those rallies fizzled.
The opportunity for increased adoption of the company’s hydrogen-powered forklifts was obvious even at the start of this year. But there wasn’t a ton of evidence that Plug Power, this time, would be able to capitalize on that opportunity.
Over the past few quarters, however, the story has changed. That’s a big reason why Plug Power stock has soared. And this week’s third quarter earnings report further confirms that this is a company that finally has learned how to execute.
After all, Plug Power posted a classic “beat and raise” quarter. The results in the quarter easily beat Wall Street estimates. Guidance was raised.
The numbers look spectacular. Billings (the actual amount of business won in the quarter) more than doubled year-over-year. Adjusted EBITDA came in at a healthy $24 million.
Net earnings still are slightly negative, but Plug Power is investing in its growth. That growth should get the company easily into the black in the not-too-distant future.
The Long-Term Case for Plug Power Stock
There’s one more data point that should be highlighted.
In the third quarter, the number of Plug Power’s GenDrive forklifts deployed rose more than 130% year-over-year.
That is simply an explosion in usage. And what’s important is that the usage has risen through the novel coronavirus pandemic. Major customers including grocers and two of the country’s biggest retailers saw massive spikes in demand, thus massive spikes in usage of their GenDrive units. Clearly, the products passed the test.
What we’re seeing here is a big shift — and maybe a paradigm shift. We know that adoption of alternative fuels is only increasing. Major companies are looking to minimize their environmental footprint, and hopefully save a few dollars in the process. Plug Power offers both.
So growth doesn’t end when this pandemic does. In fact, Plug Power reiterated its outlook for 2024 (which already looks conservative.) It expects $1.2 billion in billings, more than three and a half times the 2020 figure.
No Reason to Leave
Again, I can see why it’s tempting to argue that “the easy money has been made” in Plug Power stock. Certainly, to some extent that’s true. PLUG almost certainly isn’t going to rally another 600% over the next ten and half months. The rally is going to slow.
But there’s no real need for the rally to end. Again, there’s a paradigm shift occurring. Plug Power has expanded its addressable market to include hydrogen production. Its international business remains nascent.
This is a company with the potential to grow for decades, not years. That’s not the kind of company a long-term investor should abandon simply because a rally seems somehow too big.
More importantly, as Q3 shows, it’s a company with potential and, finally, strong execution. That’s an enormously powerful, and usually profitable, combination. It’s not a combination investors should let go of.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
