With its stock surging to 5-year highs off the back of a lucrative new deal, we ask the big question on investors’ lips: Is Plug Power a good buy?
Shares of Plug Power (NASDAQ: PLUG) have jumped more than 20% this week to date after it was announced that the company had struck a partnership to build zero-emission commercial trucks with Lightning Systems.
Although we’re not even two months deep, 2020 has already been a great year for environmentally friendly companies, most noticeably Tesla (NASDAQ: TSLA) which has seen its stock more than double since January 1. Investors are now keen to jump on board this growing EV megatrend before it’s too late, and with a market cap of just over $1.5 billion, Plug Power looks like it might be a good buy.
Before you put your money where your mouth is, however, let’s investigate if Plug Power really is a good long-term investment.
The bull case for Plug Power:
As long-term investors, we’re always trying to spot the next megatrend in the market to hop on and ride for the next few years. If the past two months have told us anything, it’s that investors definitely see a future in the electric vehicle market, with the stock price of Tesla and competitors like NIO (NYSE: NIO) shooting up multiples in value.
Plug Power is a company that could definitely benefit from this megatrend too. The company designs and produces hydrogen fuel cell systems that replace conventional batteries in machinery powered by electricity. The company is a lot older than you might think, founded back in 1997 and going public in 2002.
Here are some of the other things we like in Plug Power:
- Strong recent top-line growth, with sales expected to grow more than 30% year-on-year for fiscal 2019.
- A top tier customer base of Fortune 500 companies, including FedEx (NYSE: FDX), Home Depot (NYSE: HD), Walmart (NYSE: WMT) and Verizon (NYSE: VZ).
- A significant deal signed with Amazon (NASDAQ: AMZN) last summer which gave the e-commerce giant the rights to buy up to 55.3 million shares, or around one-quarter of the company’s outstanding shares, as well as a commitment to purchase up to $70 million of Plug Power fuel cell products for use in its warehouses and distribution centers.
The bear case for Plug Power:
There is certainly a lot to like about Plug Power at the moment, hence the threefold jump in its stock price over the past twelve months. However, there are some reasons to be cautious too:
- In addition to using Plug Power fuel cells in its distribution centers, many analysts have suggested that Amazon will use the deal to control how Plug Power deals with other customers like Walmart and FedEx, who are direct competitors of Amazon.
- The company is notoriously unprofitable, turning out a quarterly profit just once in the last decade. The company lost close to $70 million in fiscal 2018 and for fiscal 2019, some analysts are expecting the company to lose well over $100 million.
- Plug Power has $450 million in debt on its balance sheet which makes the company particularly vulnerable going forward.
So, should I buy Plug Power stock?:
It’s undeniable that Plug Power is smack-bang in the middle of one of today’s biggest megatrends. Management also has a clear, near-term plan of hitting $1 billion in annual gross billings by 2024.
However, this figure won’t be nearly as impressive if they don’t rein in costs at the company. Rough comparisons could be made between the cash burn at Plug Power and Tesla, but whereas the latter has demonstrated that it is finally getting a handle on its costs, the former has a long history of doing the opposite.
Worryingly, a lot of the recent hubbub around Plug Power also seems to have been fuelled by Reddit boards and internet chat rooms, with company stock having its most transacted day on Wednesday, February 19. This type of speculative trading might give the share price a nice bump, but also leaves a lot of people at risk of getting burned.
A short-term investor might have made a nice return on this company over the past year, but I’d be skeptical of the outlook long-term for now.
They design and manufacture hydrogen fuel cell systems that replace conventional batteries in equipment and vehicles powered by electricity.
It’s certainly a possibility given its history of acquisition and its cash hoard of $55 billion, but it’s doubtful that Jeff Bezos will want to buy all of that debt too.
No, Plug Power does not currently pay a dividend.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds no positions in Plug Power. Read our full disclosure policy here.