Should you buy Plug Power stock? (July 2023)

Plug Power develops hydrogen fuel cell systems. These have the potential to replace conventional batteries, both in equipment and in vehicles.

While electric batteries work great over short distances, clean hydrogen could be used to power longer distance trucking as well as for big cargo ships and aeroplanes.

At the latest market price, Plug Power has a market cap of 6.2 billion dollars. It’s got 1.7 billion in cash and investments and 500 million of long-term debt, so the enterprise value is roughly 5 billion.

Over the last twelve months, the company generated $771 million in revenue. But management expects this number to increase to $5 billion in 2026 and over $20 billion in 2030. That represents compounded annual growth of over 40%!

Of course, Plug Power today is not profitable. Net income over the last 12 months was -774 million and free cash flow was negative 1.5 billion. Gross margins are also negative at -30%.

But, again, management has optimistic expectations. In a recent analyst day, management said operating profit margins could hit 17% by 2026 and be above 20% in 2030.

According to these estimates, Plug Power would be generating 4 billion dollars in operating profit by 2030. Apply a 20 times multiple to that figure gets the valuation to 80 billion dollars. In other words, if Plug Power can hit its targets, the stock could more than 10x in value in less than 7 years.

The problem is, Plug Power has a long history of underperforming. The company was founded 26 years ago and CEO Andy Marsh spent the whole of the 2010s promising positive EBITDA.

That finally came in 2019 after many years of missed targets. Meanwhile, next year’s target of $200 million adjusted EBITDA doesn’t look like it will be hit and the company now admits gross profit could even decline this year.

In other words, it’s extremely hard to trust this company and that’s why the stock is a favorite among short sellers with a short interest of over 22%. Shorting the stock, however, is dangerous. It requires technical expertise about the capabilities of hydrogen, its future as a clean energy source and an understanding of regulatory risks and incentives.

#stocks #plugstock #investing #plugpower