From the performance of its shares, Plug Power (NASDAQ:PLUG) has come a long way. It spent much of the last five years trading at around $2.00. Conversely, July 2020 is its breakout month after PLUG stock climbed to a high of $10.00 before selling-off by 20%. Today, it’s trading at more than $11.
What do investors see in this fuel cell company that it did not recognize before?
Barclays set a $10 price target on Plug Power on July 9. Morgan Stanley (NYSE:MS) raised its price target to $8.50. And on June 24, H.C. Wainwright set a $14 price target. Investors should beware of these lavish price targets. For the last decade, Plug Power shares would rise quickly to incredible heights. Then the company would sell shares to capitalize on the excessive bullishness.
On July 8, President and CEO Andrew Marsh sold $11.7 million worth of shares.
To its credit, Plug Power raised its 2024 revenue and EBITDA targets. This is due to its acquisitions of United Hydrogen Group and Giner ELX. United Hydrogen “is one of the largest privately-held merchant hydrogen producers in North America.” Plug says that it can produce 6.4 tons of hydrogen daily. The company has plans to increase its daily capacity to 10 tons.
The company describes Giner ELX as including efficient and cost-effective PEM hydrogen generators. Renewable energy storage is at the grid level while it offers on-site hydrogen generation systems for fuel cell vehicle refueling stations. that
Plug has plans to have over 50% of the hydrogen used to be green by 2024.
A Closer Look at PLUG Stock
CEO Andy Marsh forecasted gross billings of $300 million in 2020. EBITDA will be $20 million. He also suggested big deals coming from Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT).
Marsh said the company “shared plans with them about how our products will roll out over the next three to five years and the same goes for the third pedestal customer.”
Any deal with a customer of that size would justify the sharp rise in Plug Power in recent weeks. Plus, if Plug Power announces any additional deals from a company as big as Walmart, the stock might attract more buying activity.
Plug benefited from very strong demand from its smaller customers. For example, ENGIE selected Plug Power to deliver refueling systems for the hydrogen-powered mine haul truck.
In the current quarter, it will position itself to win business in Europe. Also, in North America, it will position its products through a few independent dealer networks that span across the country. This includes areas in Detroit and Chicago.
Plug Power expects to have around $140 million on its balance sheet for the year. This will give it the fund it needs to build its pipeline and to move towards a positive EBITDA.
Fair Value
Plug is demonstrating strong revenue growth potential but still has no earnings per share growth:
Investors may forgive Plug for a lack of earnings.
As long as sales grow at three times the rate of that of the S&P 500, profits should eventually come.
The market is frothy enough to overlook many companies that lose money while in the growth phase.
As a note of caution, investors should notice that Plug only exceeded analyst expectations once in the last six quarters:
| Surprise Type | Announce Date | Period End Date | Actual | Est. | Surprise (%) |
| EPS | EPS | ||||
| Negative | 5/7/2020 | 3/31/2020 | ($0.12) | ($0.10) | -16.70% |
| In-Line | 3/5/2020 | 12/31/2019 | ($0.06) | ($0.06) | 0.00% |
| Negative | 11/7/2019 | 9/30/2019 | ($0.08) | ($0.07) | -12.50% |
| Positive | 8/6/2019 | 6/30/2019 | ($0.08) | ($0.10) | 25.00% |
| Negative | 5/8/2019 | – | ($0.15) | ($0.08) | -46.70% |
| Negative | 3/7/2019 | – | ($0.08) | ($0.05) | -37.50% |
The above track record suggests that the company will miss consensus estimates in the next earnings report.
Without earnings, investors should still treat the stock as a speculative bet. Plug Power needs to reverse negative operating margins and post positive returns on assets. Until then, the stock will rely on analyst upgrades and deal news to move higher.
Your Takeaway
Even with today’s surge, the average price target of nearly $10.00 (per Tipranks) is optimistic. Shareholders need to watch out for stock sales that will hurt its share price.
Selling the stock at the first sign of bearishness will preserve trading gains. By avoiding losses, shareholders could buy the stock again on the dip.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.