After an amazing 2020, electric vehicle (EV) stocks are finally losing a bit of steam. There are several reasons why this is happening, including, but not limited to, chip shortages, overvaluation concerns and the economy finally getting back on track. In the midst of all this, hydrogen fuel play Plug Power (NASDAQ:PLUG) is down nearly 16% in the past month. I believe it’s the ideal time to look into PLUG stock again, considering the pullback.
For me, the PLUG issue has always been valuation. There have been wild oscillations in the stock for the last 12 months. It has a 52-week low of $3.70 per share and a 52-week high of $75.49 a pop.
If you managed to load up on this stock somewhere in 2019, you made a lot of money on your investment, as did several retail traders when shares started to go ballistic last year. Eventually, as they say, all good things have to come to an end. When markets started to get shaky, retail investors cashed out, taking profits and investing them elsewhere.
Having said that, $30 is the floor price for this one. It will continue to consolidate around this price and then break out upward. The major issue for PLUG stock is whether it can transform from a short-term trade to a buy-and-hold investment.
PLUG Stock and the Future of Renewable Energy
The energy mix in the U.S. is changing rapidly. As a result, alternate energy stocks are the best ways to play this trend, albeit all the thunder has so far been reserved for EV plays like Tesla (NASDAQ:TSLA) and NIO (NYSE:NIO).
President Joe Biden has unveiled a $2 trillion plan to strengthen the economy, rebuild infrastructure and provide millions of jobs. InvestorPlace Web Content Producer Sarah Smith wrote an interesting piece on stocks that will benefit massively from this announcement. More specifically, the administration is spending $174 billion to promote EVs and install 500,000 charging stations to create a national EV charging network.
Understandably, EV stocks surged based on this announcement.
The green hydrogen industry needs a similar boost from Biden. During former President George W. Bush’s first term, there were talks of the first-ever hydrogen locomotive. Not only would it be excellent for the environment, but it would also help in weaning off America from dependence on foreign oil.
Unfortunately, former President Barack Obama shifted gears and focused more on electric vehicles rather than fuel-cell technology. Time will tell what strategy Biden adopts with regards to the hydrogen fuel cell industry.
Fuel cell technology has benefits over batteries for certain vehicles, at least in forklifts. They consume less energy and take less time to recharge in comparison to batteries. Still, the savings are not massive at this point. Plus, Tesla is working on a “million-mile battery.” It should help solve the major issue that is keeping EVs from wider adoption.
Positive Recent Developments
SK Group, one of the largest conglomerates in South Korea, made a $1.6 billion capital investment in Plug Power. The deal aims to build a gigafactory in Korea by 2023 to provide access to the broader Asian markets. SK Group owns roughly 9.6% of Plug Power’s outstanding share capital following the investment.
In January, French carmaker Renault and Plug Power entered a 50/50 joint venture to target an over 30% share of hydrogen-powered light commercial vehicles (LCV) in Europe. The joint venture will be formed by the end of June and build a fuel cell stack and system manufacturing center in France that will offer hydrogen refueling systems.
Financial Performance Needs to Improve
The litmus test for PLUG moving forward will be its operating performance. The broader EV frenzy will continue to be a tailwind for a while. However, any company worth its salt has to prove its credentials through its financials in the long run. Unless that happens, gains will quickly evaporate with each quarterly-earnings miss.
In the last four quarters, it has managed to beat expectations just once. In the fourth quarter of 2020, PLUG reported earnings-per-share (EPS) of negative $1.12, missing analyst estimates of a 10.4 cent loss by a whopping 976.9%, per Refinitiv data. On the bright side, gross billings increased 42.5% year-over-year, finishing at $337 million for the year.
According to the company, the major expense was related to non-cash charges caused by the accelerated vesting of a customer’s remaining warrants. So, it is a one-time expense that is not related to its operational performance. However, even if we consider the recent dismal performance as an anomaly, the prior three quarters’ performances are also concerning.
Plus, even though PLUG stock is trading at a discount, it’s still the most expensive of its peer group.
PLUG Is Worth a Look
Renewable energy stocks will only climb from here. Still, for PLUG stock to become a viable, stable investment, it needs to show consistent bottom-line growth. For the time being, PLUG remains more of a speculative play and less of a solid long-term investment.
Hence, the drop in share price presents a juicy opportunity that you cannot ignore in the short term. You are bound to make money on this investment. But it would be best if you still had a bit more to remain interested in PLUG stock as a long-term investment.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.