I am neutral on Plug Power Inc. (NASDAQ:PLUG), as its strong growth rate and bullish Wall Street consensus are offset by its rich valuation and lack of profitability.
Plug Power is a leading supplier of hydrogen fuel cells (HFC) for electric motors that are replacing conventional batteries and vehicles powered by electricity.
The company’s aim is to be a part of the paradigm shift towards sustainability in the power and transportation industry. (See PLUG stock charts on TipRanks)
Strengths
Plug Power has the distinction of creating the first commercially viable hydrogen fuel cell technology. The company has placed more fuel cell systems for e-mobility (40,000) than any other company in the world, and is now the biggest buyer of liquid hydrogen, with an operational hydrogen highway across North America.
The company’s goal is to use renewable sources to create more than 50% of its hydrogen energy by 2024. The company also intends to branch out from forklifts to heavy-duty vehicles, zero-emission light duty vehicles, robotics, data centers, and distribution hubs.
Recent Results
Plug Power reported net revenue of $124.6 million in the second quarter of 2021, as compared with $68 million on a year-over-year basis. The company’s gross billings were $126.3 billion this quarter, showing an increase of 75%.
The company also shipped 3,666 GenDrive units as compared with 2,683 units in the second quarter of 2020, and had revenue associated with 16 hydrogen infrastructure systems as compared with four on a year-over-year basis.
Plug Power recently announced its plans to expand its turnkey green hydrogen solutions to Europe, with the headquarters in North Rhine-Westphalia in Germany.
This will allow Plug Power to tap into a new market, while building relevant partnerships with leading companies committed to the transition from fossil fuel reliability to green hydrogen application.
Plug Power offers significant benefits to its end-customers, including environmental preservation, fast fueling, low operational costs, and higher efficiency gains.
The company beat analysis’ estimates and saw success in this quarter, but continued to report a loss and a high burn rate, despite its growing revenue.
Although Plug Power shows tremendous potential among renewable energy stocks, it still poses significant risks for investors.
Valuation Metrics
Plug Power stock looks pretty expensive at present with a forward EV/Revenue multiple of 19.9x. Furthermore, it continues to run up heavy losses and burn cash.
While the company is still growing rapidly, with 52.5% revenue growth and 134.6% EBITDA growth forecast for 2022, it has a long way to go before it will justify its current rich valuation.
Wall Street’s Take
From Wall Street analysts, Plug Power earns a Moderate Buy analyst consensus based on 12 Buy ratings, two Hold ratings, and one Sell rating assigned in the past three months. Additionally, the average PLUG price target of $41.14 puts the upside potential at 45%.
Summary and Conclusions
Plug Power is enjoying rapid growth, and has fairly strong support from Wall Street analysts.
That said, the stock trades at a very high P/E ratio, and will have to grow at a rapid pace for several years into the future to justify its valuation.
Additionally, it remains unprofitable and is burning cash, so it is a speculative bet at this point that it will be able to become a viable business in the future.
Last, but not least, hydrogen fuel faces significant competition from electric and other clean energy technologies, so it is also speculative.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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