For about two decades, it was essentially impossible to recommend Plug Power (NASDAQ:PLUG). Certainly few who did so — or who actually bought PLUG stock — made out well.
This simply was not a company with any ability to execute consistently. The potential for the company’s fuel cell vehicles was obvious, and enough on occasion to boost the stock. Each time, the stock fell back. By October 2019, two decades after its initial public offering, Plug Power’s stock had lost 97% of its value (which includes the impact of a reverse stock split in 2011).
There was a simple reason why: the company never made any money. Despite deals with (and investments by) a few major customers, it took until the fourth quarter of 2018 for Plug Power to post just a quarterly profit even on an Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis. The company still has an accumulated deficit just shy of $1.4 billion.
But under new management, and with a new strategy, Plug Power finally seems headed in the right direction. More importantly, it’s executing well for the first time in a long time — and maybe ever.
Add to the growing demand for alternative fuels and it’s no surprise that Plug Power finally, at long last, has taken off. It won’t be any surprise if it keeps gaining, either — and a recent pullback gives investors an opportunity to buy into this suddenly attractive long-term story.
The Legacy Business
Plug Power’s core business is providing fuel cell-powered forklifts for commercial customers. It’s a business that makes a lot of sense, one reason why Plug Power’s stock saw such optimism when it came to market in 1999. (The dot-com bubble helped as well, but PLUG rose tenfold before that bubble burst.)
Fuel cell vehicles are perfect for warehouse work. Refueling takes less time than battery charging, adding to efficiency. Total cost of ownership (including maintenance) is lower. So is environmental impact, an important point with so many companies looking to reduce emissions and their overall energy footprint.
Plug Power’s customer list already includes some of the country’s best companies, thanks to these positive attributes. More almost certainly are on the way. And with an addressable market in material handling that likely clears $30 billion, according to Plug Power itself, there’s still years of growth ahead, now that Plug Power seems to have found its footing.
Expanding the Market
Meanwhile, Plug Power’s opportunity has grown this year.
In June, the company closed on the acquisition of two hydrogen companies. The deal makes Plug Power a producer of hydrogen as well.
That so-called vertical integration makes Plug Power an even stronger company. It can now provide the hydrogen that powers its vehicles. The purchase of Giner ELX, a manufacturer of PEM (polymer electrolyte membrane) electrolyzers, pushes Plug Power further into the “green” hydrogen space. PEM electrolyzers can generate hydrogen from renewable sources of energy, moving Plug Power’s capabilities from low-carbon to zero-carbon.
Those acquisitions vastly expand the addressable market that already exceeded $30 billion. Expansion worldwide, even if it’s a few years off, can further extend the growth runway.
More broadly, the story underpinning PLUG stock has changed dramatically. Just a couple of years ago, even the unrealized potential only signaled essentially a niche business. But now, Plug Power has a path to becoming the leader in the worldwide hydrogen industry. It has even entered into a partnership that’s researching the possibility of hydrogen-powered flight.
With demand rising as more companies focus on their environmental footprint, that’s an attractive story indeed.
Why Plug Power Stock Can Keep Rising
Admittedly, PLUG stock has incorporated that better story to at least some degree. It has rallied an impressive 476% so far this year, with much of the gains coming since the beginning of May.
But, fundamentally, there’s plenty of room for the rally to continue. After the pair of acquisitions, Plug Power raised its 2024 guidance to $1.2 billion in revenue and $200 million in operating income.
5.5x out-year revenue and about 33x operating profit are both steep multiples. Given Plug Power’s growth runway — which literally is a few decades long at this point — they’re not outrageous.
Meanwhile, as we’ve seen elsewhere in alternative-fuel stocks, and even growth stocks more broadly, valuation is not a reason to sell or avoid a stock. The market is taking the long view — wisely, in my opinion, given the multiple megatrends set to drive staggering growth this decade.
The shift to alternative, environmentally conscious fuels is one of those trends. Plug Power has positioned itself perfectly for that shift. And, finally, investors can have confidence that the company will take advantage of its opportunity.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
