It’s been a rough few decades for hydrogen fuel cell maker Plug Power (NASDAQ: PLUG). PLUG stock traded above $1,000 per share back in 2000 before the dot-com bubble burst, but it has been trading under $5 for the past ten years.
However,Plug Power stock has made its way back onto many investors’ radar after it formed a few significant partnerships and the firm looked to be headed in a more promising direction. PLUG’s stock price is up more than 40% so far this year, leading many to wonder if the gains will stick this time.
At the end of June, Plug Power’s management said the firm was poised to deliver its best Q2 results ever when it announces its earnings on Aug. 8. The record-breaking quarter is expected to feature the delivery of some 2,000 fuel cells, a 70% increase over the same period a year earlier.
The new deliveries mark somewhat of a milestone for PLUG, as they illustrate the firm’s growing customer base and its ability to expand both inside and outside of its core market.
Plug Power CEO Andy Marsh said that, in addition to growing PLUG’s sales within its core material handling market, the firm has also been able to expand into small-scale robotics and unmanned aerial vehicles through its recent strategic acquisition of Energyor. Plus, Marsh said that PLUG’s partnership with CHEM has allowed it to gain a foothold in the telecom industry.
What It Means for PLUG Stock
The 70% increase in fuel cell-unit deliveries is undoubtedly great news for Plug Power, but what does it mean for PLUG stock price? That’s debatable.
For one thing, the deliveries themselves don’t necessarily translate into top-line growth. Analysts, on average, are expecting to see revenue of just $49.7 million from PLUG in Q2 because the company doesn’t always recognize the revenue from every delivery in its quarterly results. Management said the firm is still expecting to meet its full-year revenue guidance of between $235 million and $245 million.
Investors’ Ambivalence Towards Plug Power Stock
InvestorPlace’s Vince Martin pointed out that, despite PLUG’s announcement about its Q2 results, PLUG stock price increased only marginally because investors simply don’t trust that the gains will stick. I can’t blame them; this isn’t the first time the firm has shown a great deal of promise. In fact, over the past 20 years, there have been several instances in which great news about PLUG stock has come out, but Plug Power stock never actually advanced.
That’s because Plug Power’s business isn’t airtight. There’s a lot of debate over whether or not hydrogen fuel cell technology will be relevant in a decade or so. For one, lithium-ion technology has the potential to take away some of PLUG’s largest customers. But even more worrying is the fact that PLUG’s bread and butter, forklifts, is not exactly an expansive market. Even if competing technology isn’t able to steal market share from PLUG, the company needs its bets on robotics and drones to pay off in order to keep growing and maintain the upward trajectory of PLUG stock.
Is Plug Power Stock Worth a Shot?
I’m willing to bet PLUG will deliver on its Q2 forecast, perhaps even beating the already high expectations. However, while increased deliveries is certainly worth celebrating, I don’t think that’s the most important metric to use to attempt to determine the future of Plug Power stock.
The first metric to evaluate is margins. Plug Power has been working to take control of its supply chain with strategic acquisitions, and improving profitability would be a sign that those purchases are paying off. In order to be a winning stock, PLUG needs to be consistently profitable, something the firm hasn’t been able to do until now.
I’d also like to see Plug Power’s bets outside of materials handling make meaningful progress. The firm’s EnergyOr purchase brought ultra-lightweight fuel cells under PLUG’s umbrella, giving it the potential to expand into robotics and drones. However, that’s still a long way off, and we haven’t seen any real evidence that hydrogen can replace, or even compete with, batteries.
The same is true, and perhaps even more apparent, in the automotive space. Earlier this year PLUG partnered with StreetScooter to create delivery trucks powered by hydrogen-fuel cells. The firm is expected to deliver 100 of those trucks to Deutsche Post DHL in 2020. That’s great news, but can PLUG find other large customers? Battery-powered vehicles have much larger market share than those powered by fuel cells, and fuel-cell technology appears to be all but ignored.
The Bottom Line on Plug Power Stock
I’ll need more evidence before I’m willing to believe that this time is different for PLUG stock. While the firm looks to be on a promising path, I don’t think there’s enough evidence just yet to consider it a winning company. I’ll be watching from the sidelines, unless PLUG is able to prove that its technology has meaningful traction in at least one of its new markets.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
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