Should You Invest In The Capital Goods Stock Plug Power Inc (NASDAQ:PLUG)?
Plug Power Inc (NASDAQ:PLUG), a US$422.92M small-cap, is an electrical equipment company operating in an industry, which often track the broad economic cycle. During growth, businesses have excess cash, and are comfortable buying ancillary equipement. However, when economic conditions are challenging, businesses may try to repair equipment instead. Capital goods analysts are forecasting for the entire industry, a relatively muted growth of 9.18% in the upcoming year , and a robust short-term growth of 21.25% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Plug Power is lagging or leading in the industry. View our latest analysis for Plug Power
What’s the catalyst for Plug Power’s sector growth?
The electrical equipment industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Operating structures involve high fixed costs, as well as fluctuating cost of raw materials used in manufacture of products, which impacts the companies’ earnings performance. In the past year, the industry delivered growth of 9.84%, though still underperforming the wider US stock market. Plug Power lags the pack with its negative growth rate of -88.71% over the past year, which indicates the company will be growing at a slower pace than its electrical equipment peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 53.47% in the upcoming year.
Is Plug Power and the sector relatively cheap?
Electrical equipment products companies are typically trading at a PE of 17.47x, in-line with the US stock market PE of 18.25x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.40% on equities compared to the market’s 10.60%. Since Plug Power’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Plug Power’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Plug Power’s industry-beating future is a positive for investors. If Plug Power has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the electrical equipment industry. However, before you make a decision on the stock, I suggest you look at Plug Power’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has PLUG’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Plug Power? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
