Is Plug Power (NASDAQ:PLUG) topping out? Or is this stock, one of the best performers of 2020, ready for another breakout? I’m going with the former. Sure, the future may still be bright for this “green wave stock.” But, with the “EV bubble” more so than its fundamentals driving this year’s epic run, expect said bubble’s recent cool-down to impact this hydrogen fuel cell (HFC) play’s performance.
So far, shares have held steady near their highs. But, if euphoria for EV and green stocks continues to fall, expect Plug shares to fall as well … back to single digits.
Granted, with investors interested in “growth at any price,” a frothy multiple hasn’t been an issue for this stock. But, many factors could lead to a massive let down in the coming quarters.
In short, if you bought in early, it may be time to finally cash out. With the risk shares fall from around $13 per share, back to single-digits, it’s best to sell into strength.
Lack of Needle Movers for PLUG Stock
The “EV Bubble” has largely been the driver of Plug shares so far this year. But, is there anything independent of this investor mania that could help keep shares trending up?
How about the acceleration of what’s been called the “hydrogen economy?” That factor is what’s behind Morgan Stanley analyst Stephen Byrd’s recent upgrade of the stock. With the potential for new technologies to give hydrogen more of an edge against electric, Plug’s potential market may wind up much larger than expected.
Yet, while Byrd saw this as a reason to remain bullish, his price target ($15 per share) doesn’t indicate another big move is in the cards. 15% upside on a high-risk stock hardly seems like anything to get excited about.
Granted, Byrd’s bullish take may be more about Plug Power “growing into its valuation,” rather than trekking to higher price levels.
With this stock “priced to perfection” is an understatement. Shares trade at the same kinds of frothy price-to-sales ratios seen with hot EV plays like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO).
Granted, as I discussed in my recent write-up on Nio, valuation has done little to concern investors with growth stocks this year. As long as the top line keeps growing, investors are happy. But, what if there are factors on the horizon that could destroy the investment community’s current rosy picture of Plug Power? In fact, quite a few come to mind.
Past Red Flags May Finally Make an Impact
Plug Power bulls may dismiss this stock’s bears as “missing the forest for the trees.” That is to say, splitting hairs over valuation, when the company’s long-term potential makes it a worthwhile investment at today’s prices.
But, the bull case for Plug is hardly a slam dunk. In fact, there are several ways the company could fall short of expectations. Firstly, HFCs fail to become a major alternative fuel source for vehicles. As our own Muslim Farooque discussed Sept. 25, electric batteries have more potential to dominate the clean energy market.
Granted, the company doesn’t need to beat electric battery to become successful. For many applications, like forklifts, HFCs make sense as an alternative to fossil fuels.
Yet, a focus on these existing markets doesn’t guarantee the company’s projected growth trajectory stays on track. Which brings us to the second key concern: the company fails to deliver, even in the near-term. Right now, analysts expect Plug to generate $302.3 million in revenue this year (up from $230.1 million in 2019).
But, as InvestorPlace’s Ian Bezek recently discussed, prominent bears like Citron Research have said the company may miss revenue targets by as much as 40%. Add in the fact the company’s CEO is unloading much of his stock, and this looks more like the next Nikola (NASDAQ:NKLA) than the next Tesla.
To top it all off are scores of other concerns. As I wrote back in July, dilution and its use of vendor financing remain big risks as well. Simply put, there’s more than enough here to sink shares going forward.
It’s Time to Sell Plug Power
So, what’s the verdict here? Can this company overcome the aforementioned concerns again, and head even higher? It’s possible, but not likely. Retail investors have already bid up shares, and may be getting ready to take profit.
And, while the “hydrogen economy” could continue to accelerate, there’s also the risk this company’s many chickens finally come home to roost.
With this mind, sell Plug Power if you bought in at lower prices. And, if you don’t own it yet? Skip out for now, as risk/return is now far out of your favor.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.