Plug Power (NASDAQ:PLUG) announced that there were inaccuracies in its past financial results. As a result, the company said that it would have to reissue its fiscal 2018, 2019 and quarterly FY 2020 results. Despite this setback, I remain bullish about the longer-term outlook of the company and of PLUG stock.
I would not, however, recommend buying the company’s shares now. Given the still-high valuation of PLUG stock, the increased skepticism about renewable energy and growth stocks, and the company’s inaccuracies, the shares are likely to be on a downward trajectory until either the company announces positive news that impresses the market or the inaccuracies issue is fully behind it.
An Analyst Gets It Mostly Right
For the most part, I agree with a downgrade of PLUG stock issued by Truist analyst Tristan Richardson in the wake of the company’s announcement. He downgraded the shares to “hold” from “buy” and wrote:
“Following these disclosures we expect limited opportunity for outperformance [of PLUG stock] in the near-term. … While the company reiterated long-term targets and the accounting issues appear transitory in nature, we see limited upside until resolution, particularly amidst a broader re-rate in alternative energy-oriented equities.”
As an owner and supporter of PLUG stock, I found it gratifying to read that Richardson believes that the company’s “accounting issues appear transitory in nature.” After reading the company’s press release announcing the errors, I had the same impression.
The only part of Richardson’s statement with which I disagree is his assertion that “we see limited upside until resolution.” If no other issues come to light and the company announces positive news, I think the shares can rally before the revised financial results come out.
Potential Near-Term Positive Catalysts of PLUG Stock
In line with a recent prediction by JPMorgan (NYSE:JPM) analyst Paul Coster, Plug Power could soon announce a new European “pedestal” customer. Alternatively, the company could disclose that it is launching another joint venture with a huge company. This happened in January when the company made a deal with giant French automaker Renault (OTCMKTS:RNLSY).
Or Plug Power could get another big investment from a major company. That would be similar to the firm’s agreement with South Korean conglomerate SK Group, which was announced in January. Actually, even positive news about the collaboration with SK Group or the meaningful expansion of deals with Plug Power’s current customers, including Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN), would likely meaningfully boost PLUG stock. And that could happen even before the financial restatements are completed.
Finally, positive macro developments could send PLUG stock soaring before the company unveils its restated results. For example, more governments, following in the footsteps of the European Union and California, could announce support for hydrogen. Or they could even introduce legislation in favor of it.
Longer-Term Outlook of PLUG Stock Remains Strong
I continue to expect Plug Power to benefit meaningfully from the explosion of e-commerce and the increased utilization of hydrogen in transportation.
Meanwhile, there are constantly new indications that hydrogen fuel cells could increasingly be used as a backup power source.
For example, the CEO of Saudi Aramco, the largest oil producer on Earth, recently said, “I think hydrogen has huge potential going forward in transportation and power generation.” He added that, “hydrogen fuel cells are likely to compete with electric vehicles in the future and hydrogen-sourced electricity could provide backup generation for wind and solar.”
The Bottom Line on Plug Power
At this point, long-term, risk-tolerant investors who already own the shares should hold onto them. But they should also refrain from adding to their positions.
However, if one of the positive catalysts I described materializes, pulling the shares meaningfully higher, those investors should buy.
And if the stock falls 30% from its current levels, dropping their 2022 price-to-sales ratio to about 20, I would recommend that those investors buy then as well.
On the date of publication, Larry Ramer held a long position in PLUG.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.