Plug Power (NASDAQ:PLUG) stock zoomed from a mere $3 to $28 during the year. The last time the company posted such staggering gains was back in the dot-com boom. But of course, this was short-lived. Plug Power stock would then go into a long-term bear mode. It was horrible.
So is this time different? Could the rally be sustainable? I think so. The company has had the necessary time to build its infrastructure for hydrogen-powered vehicles. Yes, there have been some valuable lessons learned along the way.
Now there are still risks. Perhaps the biggest is the valuation on Plug Power stock, which is trading at a hefty 25 times sales! This is something you would see for a fast-growing software company like Okta (NASDAQ:OKTA) or Docusign (NASDAQ:DOCU), not a capital-intensive energy operator.
But then again, as we’ve seen lately, Wall Street is willing to pay a premium for growth. And the good news for Plug Power is that the growth story should last for the long haul.
The Pros for Plug Power
There are key advantages for hydrogen fuel. For example, it maintains constant power at all time. By comparison, other alternative fuels are dependent on factors like sunlight or wind. Next, hydrogen fuel means there is no need to manage batteries, which can be expensive and cumbersome. There is also no issues with handling hazardous waste. And of course, hydrogen fuel is very clean.
Now while all these are compelling, hydrogen fuel has still had lots of difficulties in getting adoption. The buildout for the infrastructure is costly. And besides, it is always difficult for consumers and businesses to change habits.
This is why it was smart for Plug Power to focus on the niche of forklifts. The company was not only able to demonstrate environmental benefits but also strong ROI (Return on Investment). As a result, Plug Power snagged major customers like Amazon (NASDAQ:AMZN), Kroger (NYSE:KR), FedEx (NYSE:FDX) and Walmart (NYSE:WMT).
With this strategy, Plug Power was able to build a growing revenue base but also refine its technologies and systems. This will make it easier for the company to branch into other market categories. According to a study from McKinsey: “By scaling up across sectors, hydrogen demand in the US could reach 17 million metric tons by 2030 and 63 million metric tons by 2050, roughly equivalent to 14 percent of energy demand.”
Some of the areas of opportunity include transportation, power generation and grid balancing, fuel for industry, feedstock, and fuel for residential and commercial buildings.
Oh, and Plug Power will be positioned nicely for all this. The company has an end-to-end system that proven for scale.
And with the bull move in the stock price, Plug Power bolstered its balance sheet with equity issuances. There is about $1.7 billion in the bank.
Bottom Line on Plug Power Stock
The recent election of President-Elect Joe Biden will be another important catalyst. Even if he has trouble passing legislation, his administration will still be in a position to change regulations. Consider that the Biden Plan calls for policies for the U.S. to reach net-zero emissions by 2050.
In the meantime, Plug Power’s business is running on all cylinders. During the latest quarter, revenue spiked by nearly 80% to $106.99 million on a year-over-year basis and the net loss was only 4 cents a share. And the momentum is likely to continue as the gross billings jumped by 106% to $125.6 million.
Now there will still be considerable volatility (just look at recent stock action). Yet this is normal for any high-growth company, especially one that has large customers. But when looking at the next couple years, the bull case still looks pretty good.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.
Written by Tom Taulli.
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