Thanksgiving in pandemic exile. Black Friday blowouts on masks and hand sanitizer. Kids nestled by the tree while visions of vaccines dance in their heads. Some holiday season: Who doesn’t want 2020 over and done with? Even investors in Plug Power (NASDAQ:PLUG) seem happy to live in a future far beyond all this virus stuff, while little bitty things like company profits and stability work themselves out for PLUG stock.
Unfortunately, I can’t visit the year ahead just yet because Plug Power confuses me enough in the here and now. This maker of hydrogen fuel cell systems is up close to 500% year over year. Yet PLUG spent much of October on a slide that saw shares drop by a quarter; the stock now trades at just above $24.
One of my InvestorPlace colleagues has dubbed the company as a “bumbling upstart” still reinventing itself. Another calls Plug Power stock “overvalued.” And still another says it has “great potential.”
What does this writer dude say? Having reported on the company before but still learning more, I’d say the long-range prospects look bright, even if the short-range run up has both the whiff of irrational exuberance and the makings of substance.
PLUG Stock and a Third Quarter Record
With its third quarter earnings report on Nov. 9, Plug Power shared some mighty good news — and it had to be good. Companies that haven’t yet moved into the black or generated free cash flow aren’t in any position to present even lukewarm numbers.
Thus it’s a good thing for investors that Plug Power reported gross billings of $125.6 million, which reflects year-over-year growth of 106%. That made for the best third quarter run in the company’s history and offered one more sign that Plug Power is ramping up to a place of primacy in an emerging market.
Recent capital raises have also given the company more than $725 million in cash to execute on its growth initiatives. Is all of this enough of a foundation for investors to remain bullish? Or does it have more the makings of hydrogen-powered hype?
Analyst Excitement, Tempered by Time
Over the past three months, the number of analysts advocating a buy position has jumped from seven to nine, making Plug Power one of the most highly recommended stocks I’ve seen recently. Yet this seems based on longer-term potential, as the average price target of $23.30 is about a dollar lower that where Plug Power stock trades today.
To know what the future looks like, you have to leave the Wall Street pundits behind for a bit and indulge in some science-related reading. A logical starting point is a new 96-page report released by McKinsey, “Road Map to a US Hydrogen Economy.” One easy-to-digest graphic, on page 66, tells an exciting part of the story.
There you’ll find a graphic that projects the uses for hydrogen fuel sources, in steps, all the way through 2031.
By 2025, it predicts we’ll be in the early scale up stages for hydrogen-powered cars, trucks and commercial vehicles.
In other words, Plug Power stock has carved out a niche in a bona fide energy space that will grow in time — though as the McKinsey document suggests, it could be four years or more before investors reap the rewards.
Plug Power Made for Buy and Hold
I give Plug Power stock a thumbs up with some qualifications. First, y’all have to get past that FOMO thing and not invest because you want the short-term killing other investors have enjoyed this year. So much of that was speculative, based on adrenaline over fundamentals.
Second, I think we are firmly in the realm of long-term play at this point. It’s highly likely profits remain at least a year off, and impatient types may dive prices down for a time as they seek some investment more worthy of a roulette wheel or a lottery ticket.
Finally, you may get more enjoyment out of Plug Power stock as you embrace the tremendous good hydrogen-powered fuel cells can do for the environment.
Sales figures and pipeline development are headed in the right direction; as it will take time for the value proposition to catch up with analyst optimism, you’ll have to hang in there. I can’t see another year like 2020 for Plug Power stock, at least not until the sector and technology blossom around it.
So yes, breathe some life into this investment — knowing that in this case, there’s nothing like hydrogen to give you a hit of oxygen.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
