Investors took the electric vehicle buying frenzy to new heights last week. Blink Charging (NASDAQ:BLNK) led the charge despite Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) igniting the rally months ago. Buying spread to the electrical equipment and parts sector, too. Renewed interest in clean energy supplier Plug Power (NASDAQ:PLUG) continued pressuring bears, who have a 15.14% short interest.
Should markets grow concerned with PLUG stock after the company raised approximately $1 billion? One of the largest bought equity deal transactions in the clean-tech sector could hurt existing shareholders.
PLUG Stock Lifted by Massive Cash Raise
Plug’s equity deal will add around $1 billion in the capital. It now has $1.7 billion in cash or around $4.00 in cash per share. So, if speculators take profits, Plug stock will still have plenty of capital to execute and accelerate its green hydrogen program.
Plug has two major clean energy projects. Together with Apex Clean Energy, a developer of utility-scale wind and solar power facilities, the firms will utilize more than half green hydrogen by 2024. The network of green hydrogen facilities will leverage Apex’s development of renewables. Investors are willing to buy into Plug’s ambitions because McKinsey says the hydrogen economy is worth up to $2.5 trillion by 2050.
Plug and Apex are also developing their green hydrogen network using wind power. Chief Executive Officer Andy Marsh said, “We expect the levelized cost of hydrogen produced by renewables to continue to decline while providing active returns for our investors.” As industries decarbonize the electric grid, producing clean hydrogen fuel in its place, Plug’s addressable market will expand.
Near-term Headwinds Ignored
Markets should have reacted negatively to Plug Power’s 38 million share offering for $22.25 a share. But after the Nov. 16 announcement, speculators figured the $750 million cash raise would help support the company’s capital needs. Despite diluting shareholders, the stock continued heading higher. Eventually, the sharp drop in EV stocks like Ayro (NASDAQ:AYRO) and Blink Charging will pull Plug shares lower.
A correction in the sector is healthy. It will shake out the speculators while loyal shareholders will continue holding shares.
In the third quarter, Plug posted revenue growing 79.9% year-over-year to $106.99 million. It lost 4 cents a share (non-GAAP) and lost 11 cents on a GAAP basis. The company forecast gross billings of up to $330 million in the fiscal year 2020. This increases to $450 million in FY 2021 and then jumps to $1.2 billion in FY 2024.
The astute value investor will notice that the bigger the sales growth, the bigger the losses on a GAAP basis. The recent stock sale will offset the negative cash flow but lets the company expand its business.
Potential Positive Catalysts
Problems in California’s energy grid is accelerating its discussions with Plug. CEO Marsh said the state will not bring meaningful revenue through 2022. Still, its power backup business is essential in supporting data centers or logistics. For example, it has 500 small-scale backup power systems for The Southern Company (NYSE:SO).
On Wall Street, nine analysts rate the stock as a “buy” with a $22.22 average price target, according to Tipranks.
In the chart above, Plug’s seasonal strength continued through to this month. That pattern continues at the start of 2021. Plug’s only negative month of performance is in April. This is months away. Investors are free to speculate on the stock for the next few weeks.
If the EV and clean energy hype end, then Plug shares may correct. Given the strong cash levels on hand, the stock is not likely to fall by much.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.