In my last column about Plug Power (NASDAQ:PLUG) stock, I predicted the company would make a comeback after it announced new, impressive deals. The company did indeed make such announcements, but the shares are stabilizing instead of rallying, stymied by a recent off-base, bearish analyst note.
Still, given the company’s strong upcoming positive catalysts, which much of the Street appears to be greatly underestimating and the fairly innocuous nature of Plug’s accounting errors, I remain upbeat on its longer-term outlook and believe that some investors should resume buying Plug’s shares.
On April 8, Plug Power disclosed that the Department of Energy had invited it to apply for a proposed $520 million loan guarantee. The news is significant because it shows that the Biden administration is ready, willing and able to provide strong support for hydrogen projects in general. That support will prove to be enormously valuable for the company in the coming years.
On April 5, Plug disclosed that Chart Industries (NYSE:GTLS) and Baker Hughes (NYSE:BKR) would each contribute €50 million to a fund that will invest in hydrogen projects. Plug itself will invest €160 million in the fund. The news shows that even large companies outside of the renewable energy space see the huge potential of hydrogen. That certainly bodes well for the outlook of PLUG stock
In another positive sign for the hydrogen sector, hydrogen vehicle maker Nikola (NASDAQ:NKLA) agreed on April 14 to partner with two other firms in an effort to develop a hydrogen transportation system in Germany.
In recent days, at least partly due to the cumulative impact of these deals, PLUG stock has stabilized around the $28-$30 level.
Much of the Street Is Underestimating PLUG Stock
One of the key factors holding Plug’s shares down recently was a fairly bearish analyst note, issued by Morgan Stanley’s Stephen Byrd on April 12.
Byrd reinstated coverage of Plug Power with an “equal weight” rating and a $35 price target. The analyst is upbeat on the company’s longer-term outlook but warns that discounted cash flow analysis suggests 8% upside.
Byrd’s approach to evaluating PLUG stock reminds me very much of the notes that many analysts issued from 2015-2018 about solar energy companies.
During those years, analysts’ estimates routinely underestimated the solar energy boom that was happening and would continue for many years. As a result, their forecasts of the future valuations of solar stocks were way off.
It’s true that the valuation of Plug Power is many times higher than that of the solar stocks I touted years ago, but there are a few differences working in Plug Power’s favor.
First, my sense is that Plug Power is facing much less competition in the hydrogen market than the solar module makers had to deal with from each other six years ago.
Second, governments and companies are much more committed to cutting carbon emissions now.
Finally, as I’ve noted in multiple, prior columns, the boom of e-commerce is creating an immediate, widespread economic incentive for many companies to adopt Plug Power’s products. From 2015-2018, there were not many companies that had tremendous economic incentives to adopt solar energy.
The Bottom Line
In a very pertinent April 4 column published on Seeking Alpha, The Value Fund shows why hydrogen is poised to be widely adopted and argues persuasively that the company’s accounting errors are not very serious. The fund contends that:
“Much like LNG, hydrogen can be easily stored and transported and is, therefore, a great complement to renewable energies, which suffer from the fact that they are irregular. According to the IEA, hydrogen is one of the best ways of storing and distributing renewable energies, which is where the real problem with transitioning to a green economy is.”
PLUG stock appears to have stabilized in the wake of the recent, positive news. Meanwhile, the outlook of hydrogen, which Wall Street is greatly underestimating, remains as strong as ever.
Given these points, I recommend that long-term growth investors resume buying Plug’s shares following their recent pullback.
On the date of publication, Larry Ramer held a long position in PLUG. He also held a long position in GE which owns shares of Baker Hughes.
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.