Plug Power (NASDAQ:PLUG) is a green energy hydrogen power and battery energy storage company whose stock has been out of control. PLUG stock is up about 40% year-to-date and 1,300% in the past year. The stock is simply overvalued, even at its present price.
Since late January, when it hit a peak closing price at $73.18, PLUG stock has fallen 35.4% to $47.25. However, the problem is that even now the stock is way overvalued.
Valuation Out of Control
For example, the company is still not profitable. For some reason, the company reports that it had negative revenue of $316 million for the quarter and negative $100 million for the year. This has to do with the accounting treatment of non-cash charges related to the accelerated vesting of a customer’s remaining warrants.
As a result, the company reports that its gross billings were $96.3 million in Q4 and $337 million for the year. Given that PLUG stock has an astounding $28.14 billion market value, this puts the stock on a forward price-to-revenue multiple of 89.1 times.
Moreover, going forward, analysts covered by Seeking Alpha forecast that Plug Power will make $460 million in revenue during 2021. That gives PLUG stock a forward price-to-sales ratio of 60 times in 2021. Also, in 2022 revenue is forecast to rise 56% to $740 million after rising 36.5% this year. That lowers the valuation somewhat to 38.27 times sales.
These numbers are still astronomical. Here is what that means. If you bought control of the whole company at today’s market value, you would have to wait 38 years just for revenue to equal (assuming no growth) what you paid. Even with an average of 50% growth, it would take nine years until 2029 before the total cumulative sales would equal its market value . And that is not profits.
In other words, the price-to-sales ratio is too high.
However, Plug Power has $5 billion in cash and it forecast that it will be able to deliver on its 2021 to 2024 targets. For example, the company said in its earnings release it will produce hydrogen of 500 tons per day by 2025 and 1,000 tons per day by 2028.
What Analysts Say About Plug Power
On March 2, Barclays analyst Moses Sutton downgraded Plug Power to “underweight” with a price target of $29 per share. That represents a drop of 38.6% from the current price of $47.25.
The analyst detailed the company’s progress over the past several years. This includes its huge increase in hydrogen power production, as well as its joint venture with Renault and its backup battery storage for large cloud operations.
But the analyst then said that the market has overpriced Plug Power’s ambitions. Seeking Alpha says that the analyst wrote that the market’s valuation is well above its inherent value.
On a troubling note, the company made an SEC filing on March 2 that it was not going to be able to complete its 10-K on time. It needed more time to figure out if its internal controls were strong enough and to complete the procedures relating to its year-end reporting process.
However, most analysts are still highly enamored with Plug Power. For example, TipRanks.com reports that 13 analysts have an average price target of $62.85. This represents a 33% potential gain.
What To Do With PLUG Stock
The President Joe Biden Administration is possibly looking to increase incentives for electric vehicles. That could act as a catalyst for PLUG stock. It might mean some of that money would spill over to hydrogen-powered electric vehicles as well.
But until something major along those lines happens, it might be wise for the cautious investor to wait. They can see if PLUG stock either grows into its valuation or if the stock falls. Otherwise PLUG stock looks to be overvalued.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
