In terms of its practical description, Plug Power (NASDAQ:PLUG) makes hydrogen fuel cell systems for forklifts and the like. Yawn. But on the Wall Street side of things, PLUG stock makes enough money for investors that they’ve needed to rent forklifts lately to carry it all. Party on!
Although the company has flirted with making a profit, but hasn’t done so yet, the rally of Plug’s shares has inspired envy even among investors in Tesla (NASDAQ:TSLA). While Tesla stock rocketed 696% in 2020, PLUG stock surged further, finishing the year up by 950%. In January alone, Plug’s share price has more than doubled. As Devo once sang in its cover of “Working in the Coal Mine,” “How long can this go onnnnnn?”
There’s been much debate among market observers as to whether this rally will continue or if this hydrogen baby will make like H2O and pour cold water on investors.
So far, not yet. In fact, as 2021 gets started, PLUG stock may just be getting started. I’ll explain why I think so in a bit. Meanwhile, let’s have some well-reasoned fun at the expense of the naysayers.
Why PLUG Stock Contrarians Have It Wrong
Many experts, including one short seller writing for Seeking Alpha, seem frustrated and even annoyed that PLUG stock has soared so far despite the company’s lack of a profit. Kerrisdale Capital Management has disparaged Plug Power as a “Fool-Cell Maker.” Ouch. I mean, what a bad pun. Don’t make a Fool of your Cellf.
Now back to our story. Kerrisdale’s’s premise in large part rests on faulty logic: that “the ‘Hydrogen Economy’ is a fantasy because hydrogen is fundamentally too expensive” at all levels of the supply chain.
An exhaustive, 96-page report released by McKinsey in October tells a more complete, nuanced story. Entitled “Road Map to a US Hydrogen Economy,” it projects that hydrogen power for transportation will become a “mature market” for cars, vans, buses and trucks by 2025. Hmmmm. Sounds tailor made for a PLUG stock play.
True, Kerrisdale does some solid reporting. But it also cites a hydrogen power-efficiency graphic from Volkswagen AG (OTCMKTS:VWAGY). As in the $33.3 billion, dirty-energy-scandal-Dieselgate Volkswagen. This to me seems a bit like taking advice on the evils of drug use from Keith Richards.
Wall Street Analysts See Things Differently
Bullish may prove a mild description for Wall Street’s attitude towards PLUG stock. Ten of 12 analysts cited by the Wall Street Journal call it a “buy“, with just two calling it a “hold.” I don’t see any “sells” on that list and neither will you.
With its third-quarter report on Nov. 9, the company disclosed 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, though it did miss earnings-per-share forecasts by 4 cents. Plug’s per-share loss came in at 11 cents as opposed to the 7-cent loss that the Street had expected.
As for what happened to Plug Power last quarter, investors will have to wait a few weeks. The company has not announced an earnings-report date, thought it’s expected to drop in the first week of March.
Plugging in to the Future
But in the meantime, investors received excellent news on Jan. 1;. Plug Power announced a tentative agreement with Groupe Renault (OTCMKTS:RNLSY) to launch a 50-50 joint venture by July. By building a manufacturing base in France for hydrogen fuel-cell systems, the companies plan to target close to a third of Europe’s fuel cell-powered light commercial-vehicle market.
If that initiative succeeds, the PLUG stock faithful should hold their shares, even if the astronomical returns of 2020 have spoiled them rotten. Any new facility might not impact the company’s bottom line for at least several quarters. Meanwhile, Plug Power has just announced plans to open a new manufacturing facility and “innovation center” in the Rochester, N.Y. area.
I look at it this way: Plug Power has been around since 1997 and has had plenty of time to figure out the hydrogen business. Yes, it has made some clumsy missteps and mistakes along the way. But there’s every reason to believe that it’s maturing, even as the hydrogen fuel-cell market matures alongside it. PLUG stock has promise.
So Here’s My Plug
I do agree with InvestorPlace columnist Faizan Farooque that PLUG stock is trading at an “unrealistic premium” and that it may reach a better entry point given the unrelenting surge of its price. He cites JP Morgan analyst Paul Coster to support that view, yet Coster also calls the company “best in class.”
If the rally continues for a little bit, now may be as good an entry point as any. And this investment still screams “winner” to me. But while PLUG stock might seem like a steroid-injected, short-term play, I’d plan to hold on to it for at least three years. During that time, however, it’s bound to go through some price correction.
But hopefully by 2025 or before, the hydrogen fuel-cell market for vehicles and this hydrogen maker will enjoy some well-deserved oxygen — that is, plenty of breathing room, elbow room and growing room.
On the date of publication, Lou Carlozo held long positions in PLUG and TSLA.