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Plug Power Is Overly Hyped With No Prospects of Profits

Mark R. Hake
·4 min read

Plug Power (NASDAQ:PLUG) stock is another overly hyped clean energy stock that has no near-term prospects of profits. Plug Power stock is now up almost 1,000% percent in the last year, i.e., up 10x. But it is out of control.

Man hold a fuel dispenser with hydrogen on gas station. h2 combustion engine for emission free eco friendly transport.
Man hold a fuel dispenser with hydrogen on gas station. h2 combustion engine for emission free eco friendly transport.

Source: Alexander Kirch / Shutterstock.com

There seems to be no end in sight for ridiculously high this clean energy stock will go. But the crash will come hard. Avoid Plug stock like the plague.

Ridiculous Valuation

Right now, Plug Power has an astounding $14.7 billion market capitalization. But at best analysts expect just $300 million in sales this year and $408 next year.

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That means Plug Stock at 50x 2020 sales and 36x forecast 2021 sales. This is beyond ridiculous. More importantly, the company has no prospects of profits anytime soon.

For example, in my last article on Plug Power, I showed how the company has had nothing but losses in the past 10 years.

9-27-20 - PLUG Stock - 10 year history of losses
9-27-20 - PLUG Stock - 10 year history of losses


Click to Enlarge
Source: Mark R. Hake, CFA

Plug Power has been losing money for a long time. You can see this in the chart.

It shows that in the past 10 years Plug Power has grown revenue but also its net income losses.

So, although revenue has risen from $20 million in 2010 to a forecast of $304 million in 2020, losses have expanded as well. They have grown from $47 million in 2010 to more than $101 million estimated in 2020.

9-27-20 - PLUG - EPS History Last 10 Yrs
9-27-20 - PLUG - EPS History Last 10 Yrs


Click to Enlarge
Source: Mark R. Hake, CFA

However, you can see in the next chart that earnings per share (EPS) losses have improved over the past 10 years.

The EPS loss was in 2020 was -$3.58 per share and the losses for 2020 are forecast to be 29 cents per share.

Maybe there is some hope for this company after all.

So why is PLUG stock moving up to such a ridiculous valuation?

What Is Propelling Plug Power Higher

The $900 billion Covid-19 relief bill includes tax credits for solar and wind power projects as well as fuel cells. The law, now signed by President Donald Trump, extended the 26% investment tax credit (ITC) for fuel cells for two years.

But the problem with analysts are forecasting two more years of losses for Plug Power. For example, the best estimate I can find for 2022 EPS is for a loss of 14 cents.

So it seems beyond reason why Plug stock should be up almost 10x this year. For the next two years, the company won’t be profitable. There is no basis in logic why Plug Power should have a $14.7 billion valuation when net income will be -$63.4 million in 2022.

In other words, this does not make sense. Unless, of course, investors are looking way out into the future and are discounting outsized profits back to the present.

The problem is there is no history or background to believe this will happen.

What To Do With Plug Stock

So far analysts are not that sanguine about PLUG stock. For example, the average analyst target is $27.27 per share, according to Yahoo! Finance. This represents a potential drop of 16% in the stock if it occurs. Moreover, this is the consensus of 12 analysts on PLUG stock.

Moreover, Tipranks has a similar average price target for PLUG stock. They report that eight analysts have an average price target of $27.13 per share. That represents a potential loss of 16.4% from today’s price.

I fear, though, that once the stock drops, it could move much further. For example, if the market begins to realize that the company won’t be making a profit any time soon, the disappointment could come just as quickly as the stock spiked.

Here is the bottom line. Plug stock is up almost 10x in the past year with no prospects of profits anytime in the next two years. The stock has moved up based on speculation about the prospects for clean energy stocks. But most cautious investors will likely stay away from this kind of momentum play.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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