Riding high thanks to the EV bubble, what’s next for Plug Power (NASDAQ:PLUG) and PLUG stock? A rising star in the hydrogen fuel cell (HFC) space, shares are up 309% so far this year. While the company’s prospects appear strong, lingering concerns remain.
What do I mean? Firstly, valuation. Granted, valuation hasn’t been a major concern in this year’s market, where growth stock winners keep on winning. Even as they trade at frothy multiples. But secondly, and most importantly, the many red flags that investors have largely ignored.
Vocal short-sellers have highlighted these concerns in the past year, the most recent one being Citron Research. Yes, those shorting PLUG stock have been on the losing side of the trade so far this year. But the ship may have already sailed for those who want to go long today. In short, avoid this “too hot to touch” name as it trades around $13 per share.
PLUG Stock and the EV Bubble
Sure, you can chalk the three-digit gains in Plug’s shares to its strong results as of late. As InvestorPlace’s David Moadel wrote Aug. 25, the company manged to “crush it” in the recent quarter. Even as the novel coroanvirus pandemic materially affected the global economy.
The company already provides the fuel cells that power Amazon (NASDAQ:AMZN) and Walmart’s (NYSE:WMT) forklifts. Signing on additional big ticket customers seems inevitable.
Yet, a larger factor pushing PLUG stock higher has been the “EV Bubble.” After March’s pandemic sell-off, electric vehicle, and other “green”-related stocks have become hotter than they’ve ever been with investors.
Sure, with major corporations and governments around the world accelerating “go green” initiatives, prospects look bright for the electric and hydrogen-powered vehicle space. It’s also obvious today’s heavy enthusiasm for Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), and similar names like Plug Power is being driven by speculation as much as it’s being driven by improving prospects.
So, what does that mean for investors who missed the boat five months back? Do you join in on the fun and ride the momentum to new highs? Or do you sit out this bubble, given it could pop at any moment?
I’m on the bearish side of this debate. And not just because of valuation. If there’s truly a “paradigm shift” in the making, and these hot EV companies wind up dominating their respective markets, splitting hairs over frothy multiples will look foolish in hindsight.
However, factors that may help Tesla and Nio continue their rise to the top may not apply here with Plug Power. Many red flags largely ignored by Mr. Market could finally become relevant concerns among investors.
Red Flags Simmering Beneath the Surface
Granted, it’s looks tempting to ride the wave with PLUG stock, but don’t ignore the numerous red flags that so far haven’t had much of an impact.
Which am I talking about? As I’ve written in previous articles on the stock, red flags include a history of shareholder dilution, as well as precarious use of vendor financing. Granted, with investors buying on headlines rather than fundamentals, shareholder dilution hasn’t been a top concern.
The aggressive vendor financing has likely helped Plug knock it out of the park with quarterly results. But these chickens may start coming home to roost. Especially if it becomes clear profitability is not on the horizon.
As our own Charles Sizemore recently wrote, Plug Power needs real profits, not just revenue growth, to sustain its current valuation. If the company keeps having to sell more stock in order to keep the growth train humming, this is going to be tough to achieve.
With High Expectations Priced-In, Skip Out on This Bubble Stock
Time and time again, the company has touted its 2024 revenue and adjusted EBITDA targets to show investors how big the company could eventually become. As of now, the 2024 targets call for $1.2 billion in revenue and $250 million in adjusted EBITDA.
Impressive, given the company currently has trailing twelve month (TTM) sales of $259.7 million and negative operating earnings. However, with the stock currently sporting a market capitalization of over $5 billion, you can argue that investors are expecting the company to not just meet its 2024 targets, but exceed them.
What happens if the company falls short? Sure, the pandemic has proved to not have much of an impact for this company. But, with the potential for a double-dip recession, the company could experience some hiccups. And if this hits the brakes on the growth train, don’t expect shares to remain in the double-digits.
In short, “priced for perfection,” with factors at play that could sink shares back to prior levels, today’s share price ($13 per share) is not a great entry point for PLUG stock.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.