Plug Power (NASDAQ:PLUG) has been one of the more profitable, yet volatile, stocks in the last two years. This has been fueled significantly by retail investors. PLUG stock is a favorite among Robinhood (NASDAQ:HOOD) investors.
The company combines two elements that have been important to this new generation of investors. First, prior to the Covid-19 pandemic, PLUG stock could be had for less than $5 a share. Second, it’s a play on clean energy and climate change. At a time when alternative energy sources are becoming more viable, it makes sense for investors to look at Plug Power’s first-mover advantage in the hydrogen fuel-cell market.
And if you had bought shares in PLUG stock five years ago, you are enjoying a 1,775% return. That being said, PLUG stock is down 60% in the last 12 months. And the stock looks precariously close to dropping below what has been a solid level of support.
In fact, as interest in Plug Power grows so, it would seem, does impatience about the company’s prospects. I keep seeing message boards that advise investors to “know what they hold.” But if investors truly believe that, then they know it could be quite a while before PLUG stock pays off.
E-Mobility is Tough Math
In the U.S. at least, electric vehicles (EVs) only account for a small percentage of the entire market. In researching for this article, I saw one source put the number at 1%. Another source referenced a study from Reuters that put the number at 3%. That number jumps to 5% if you factor in hybrid models.
There are many reasons for that. But one of them is the company’s developments in battery technology and progress on a charging infrastructure. Nevertheless, a study by BloombergNEF predicts that worldwide EV sales will reach 14 million by 2025. That’s more than four times the 3.1 million sold in 2020. The same study predicts that EV’s will represent over 60% of all new car sales worldwide by 2040.
Plug Power isn’t going after the passenger car market, but it is going after the commercial and fleet market. The same transition is happening in that sector. And that’s where the math gets difficult for Plug Power.
One problem for Plug Power is not to prove that its technology works; it’s proving that the technology is a more cost-effective solution to battery-electric vehicles. And today, it’s not even close to being more cost-effective. The problem is that fleet operators make decisions for today.
And just recently, the city of Montpelier, France canceled an order for 50 hydrogen fuel-cell buses. The reason is that, upon crunching the numbers, they realized it would be approximately six times more expensive to operate fuel-cell buses as opposed to battery-powered electric alternatives.
Another plus is electric vehicles can run for years. For example, “the useful life expectancy of an electric bus is around 12 years.” That means that the orders that Plug Power is losing today may not come back around for a decade.
First Mover Advantage May Take Time to Pay Off
Fortunately for investors, Plug Power is not relying on fleet sales as its sole source of revenue.
The company has invested heavily in electrolyzers and green hydrogen. As world governments begin to support hydrogen solutions in fighting climate change, this could be where the growth comes from.
Expect PLUG Stock to Struggle in the Short-Term
In the short-term, I believe PLUG stock will continue to struggle. The general mood of the market doesn’t support risk-on stocks like Plug Power. However, the long-term story for Plug Power seems bullish. And the analyst community agrees.
Currently, PLUG stock has a 12-month price target of $48.85. That’s impressive, but really it’s just a function of the volatile price movement in the stock. What’s more interesting is that in the last 12 months, the number of analysts covering the stock has increased and so have the number of buy ratings.
This is probably because institutional ownership is increasing. Over the last 12 months, institutional buying has nearly doubled institutional selling. And nearly 50% of PLUG stock shares are owned by institutions.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.
