I’ve been a bull on Plug Power (NASDAQ:PLUG) – a top liquid hydrogen provider – for some time. But honestly, I did not think the returns would be anywhere near the 15X surge that PLUG stock returned during the past 12 months.\
Actually, the return for this year is already 84%.
Yes, it’s been breathtaking. The market capitalization is now at $27.8 billion.
Of course, in today’s markets, there is quite a bit of enthusiasm for breakout companies. It certainly helps that the Federal Reserve has pursued an aggressive policy to keep interest rates at rock bottom levels. Then there is the fiscal stimulus. Oh, and then there are the Robinhood investors who love to take stocks into orbit!
No doubt, the giddy times for PLUG stock are in stark contrast to most of the company’s past. From early 2001 to 2019, the shares were mostly dead money.
It was incredibly difficult to get much adoption for hydrogen fuel. As a result, the company had to periodically issue large amounts of stock to stay afloat. And ultimately, there had to be a rethinking of the business model.
If anything, the story of PLUG stock is similar to Advanced Micro Devices (NASDAQ:AMD). These were both relatively small companies that were trying to make a big difference and had huge challenges to take on. But in the end, these companies brought in the right leadership to get things back on track.
Leadership Moved Plug Power Forward
Back in April 2008, Andy Marsh came on board as CEO of Plug Power. It was a tough time to take the top spot, as the economy was plunging into the financial crisis. There was not much appetite for experimental energy approaches.
But Marsh was a believer in the long-term for Plug Power. But instead of using hydrogen fuel cell technology for the general transportation market, he focused on the material handling space, such as for forklifts.
This strategy turned out to be spot-on. Hyrdogen fuel cells provided a variety of advantages like:
- Constant power at all times, even in freezing temperatures
- No need to change or manage batteries
- More room on factory floors (since there is no need for charging rooms).
- No hazardous materials.
Marsh was also aggressive with his go-to-market strategy. To this end, he snagged marquee customers like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), Carrefour and Kroger (NYSE:KR).
Now Marsh’s strategy was not quick in getting results. It was a literal a slog. But eventually, the company reached critical mass.
Just look at the latest quarter. PLUG reported gross billings of $125 million, an increase of over 100% on a year-over-year basis.
As March proved out the model, new opportunities emerged. For example, the latest came this year with the announcement of a 50-50 joint venture with Groupe Renault for the development of cell light commercial vehicles, taxis, and commercial people transportation systems in France.
Then there was another deal with SK Group to create a strategic partnership for Asian markets. For this, SK Group has agreed to invest $1.5 billion in Plug Power.
Bottom Line on PLUG Stock
So yes, when it comes to the core business, there is little to quibble about. But as for PLUG stock, this is another matter. The recent price action has been excessive.
For the most part, it seems that investors are setting up for expectations that will be tough to meet. Also, as seen during the past couple of years, PLUG stock has been quite volatile. After all, given the large contracts, there can easily be slippage at the end of the quarter.
So in light of all this, it’s probably best to be cautious right now. If Plug Power has even a slight disappointment, the stock could be hit hard.
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 author of courses on topics like the Python language and COBOL.
