The last time I wrote about Plug Power (NASDAQ:PLUG) was in early April. It was a couple of weeks after PLUG stock had lost a chunk of its value due to the March 16 press release from the company acknowledging accounting errors going as far back as March 2019.
I quoted B. Riley analyst Christopher Souther. He believed the drop in its share price provided a buying opportunity.
“‘Given our view that this news does not change the historical or future growth trajectory of the company,’ the analyst wrote in a note to clients. ‘We believe this is another piece of accounting noise that has created an additional buying opportunity in the stock.’”
I argued that if you could handle above-average risk, the analyst’s argument was a good one. However, given the accounting issue hanging over the stock, I didn’t think it was worth anywhere near $75.49 , the 52-week high it reached in late January. But I recommended picking up the shares in the $20s.
On May 11, PLUG hit a six-month low of $18.47. On May 14, Plug Power filed its 10-K for 2020. It included restatements for 2018, 2019, and 2020. The stock gained 12% on the news.
Is Plug Power a buy now that the accounting issue has been resolved? I think it is. Here’s why.
PLUG Stock and $35
First, let’s consider all of the restatements and what they mean for PLUG stock.
For 2020, Plug Power changed its top-line total to -$93.2 million, $7.2 million higher than the original figure. Its 2020 revenue was reduced by $399.7 million due to an issue related to Amazon’s (NASDAQ:AMZN) warrants on its shares. On the bottom line, it lost $1.68 per share in 2020, 10 cents higher than the per-share loss it previously reported and considerably above its 36-cent loss per share in 2019.
For 2018 and 2019, its sales were cut by $400,000 and $300,000, respectively. its 2019 earnings didn’t change, and its 2018 loss was raised by 3 cents to 39 cents.
When you add it all up, Plug Power lost an additional $42.1 million over three years. That’s 5.8% higher than the company’s original $725.4 million of total losses.
That’s not much of a difference. If you were enthusiastic about PLUG stock before the company announced that it would have to restate its earnings, I don’t see why you wouldn’t still be enthusiastic about it.
Plug traded at $46 on March 15, the day before its announcement. It’s now trading for just over half of that, and the only thing that’s changed is that it lost an additional $42 million.
I don’t see anything else that’s changed between then and now.
Either PLUG stock was unbelievably overvalued at $46 in March, which is a real possibility, or it’s now undervalued, as no more damning evidence is on the table at the moment.
If we split the difference between $25 and $46, we get $35.50. That’s almost 50% above yesterday’s closing price of $24.94. If you’re an aggressive investor, that is a bet you ought to take.
The Negative View of Plug Power
InvestorPlace columnist Matt McCall recently discussed why the magic has worn off for Plug.
“Consensus expectations for 2021 call for $472 million in revenue this year. With its market capitalization of $13.5 billion, that still leaves PLUG stock trading at roughly 28 times this year’s revenue,” McCall wrote on May 13. “That’s expensive during a good time — like during a bull market. During a bear market, that’s not good, even if the stock is down 70% from its highs.”
McCall argues that the good times for high-growth stocks are over. Gone are the days when investors were willing to pay 65 times sales for Plug Power. Basically, he’s saying that you can’t fight the trend.
And he’s not wrong.
He goes on to state that even though Plug Power has done a good job of strengthening its balance sheet, the company’s negative cash flow makes its risk-reward proposition a loser for most investors.
Another InvestorPlace contributor, Josh Enomoto, also feels that PLUG stock got ahead of itself, after the election of an environmentally-friendly president, Joe Biden, lit a fire under its share price.
Further, the company has lost money for 14 consecutive years and has never generated positive free cash flow. These two metrics suggest that only investors with strong stomachs should get involved with this clean energy stock.
He, too, is not wrong.
Investors who don’t have the stomach for Plug Power should buy some shares of Invesco WilderHill Clean Energy ETF (NYSEARCA:PBW) or one of the many clean energy ETFs that own PLUG stock.
The Bottom Line
From Plug Power’s high in January to its May 10 low, the company’s shares tumbled 76%. That’s a lot. The odds of it doing that again in 2021 are slim to none.
That said, I’m not suggesting that if you buy the shares today, you’re guaranteed a profit in three, six, or 12 months. The markets provide no such assurances. However, if you understand probability theory, you know that your odds of success are much higher at $25 than they are at $75.
At the end of the day, nothing has changed for Plug Power due to its restatements. It’s still full speed ahead for the multiple hydrogen production facilities that it’s building in the U.S.
If you’re an aggressive investor, you’ve got an opportunity now to take advantage of the weak hands that exist in this market. If you can buy some PLUG stock under $20, that’s even better.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
