Many publicly traded companies have fallen from grace. But few have done it as dramatically as hydrogen fuel-cell maker Plug Power (NASDAQ:PLUG). PLUG stock debuted on Wall Street in 1998 — in the early innings of the tech bubble- – at $120. By the peak of that bubble in 2000, shares were trading near $1,500.
Today, the PLUG stock price trades hands at $2 and change. That is quite literally a 99.9% wipe-out in value over the past two decades.
What’s up with Plug Power stock today? The company is pushing forward on the hydrogen fuel-cell front with mixed success. On one end, revenues and billings are growing rapidly because of more widespread deployment of commercial hydrogen vehicles. On the other end, the consumer market remains sluggish while margins remain depressed. Plus, the company continues to lose a bunch of money, all against the backdrop of a debt-burdened balance sheet.
The result is that while Plug Power stock has more than doubled from its late 2018 lows, it trades roughly flat with where it was a year ago. The implication? Things are getting better for shares in the near term. But in the big picture, they aren’t getting that much better.
Zooming out, this should remain the trend for Plug Power for the foreseeable future. Things probably will get better. But again, not that much better. The problem is PLUG stock is already priced for better. Thus, unless things improve significantly soon, the equity doesn’t look that appetizing at its current levels.
The Optimist’s Case for PLUG Stock
Plug Power makes hydrogen fuel-cells which power hydrogen cars.
The technology here is pretty complex. Generally, PLUG develops hydrogen and oxygen-based platforms to power vehicles of all shapes and sizes. This technology contrasts sharply to cars using gasoline or plug-in electricity.
The benefit relative to gasoline? Hydrogen is cleaner, and in greater abundance. In terms of comparative advantages against electric vehicles, hydrogen lasts longer. Plus, hydrogen cars take less time to “re-fuel” than their plug-in EV counter parts.
Despite those benefits, the hydrogen car market has remained broadly sluggish for several years. Why? Because hydrogen cars are significantly less efficient than their EV and gas-powered peers. Moreover, a lack of infrastructure which supports hydrogen cars (unlike the rapidly sprawling plug-in EV infrastructure) stymies progress.
Consequently, hydrogen cars have failed to gain mainstream consumer traction. Total hydrogen car sales in the U.S. measured less than 1% of total EV sales, and were basically flat year-over-year.
Still, commercial adoption of hydrogen vehicles has been much more encouraging because commercial EVs lack adequate range. This is where Plug Power is currently making a killing. Their acumen with hydrogen-based vehicles eventually attracted partnerships with blue-chip giants like Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).
This market should continue to grow over the next several years. First, governments increasingly pressure companies with emissions requirements, and hydrogen provides a ready-made solution. Second, EV tech, despite best efforts, continues to have range limitations.
As the hydrogen market grows, Plug Power’s billings, revenue, and margins should improve. Within the next five years, this company could actually be consistently profitable. And that might improve the long-term outlook for the PLUG stock price.
Don’t Get Carried Away with Plug Power Stock
Thanks to more widespread commercial adoption of hydrogen cars, the fundamentals underlying Plug Power stock should improve. But the improvements will likely be incremental, meaning you shouldn’t gamble too heavily on these shares.
One significant headwind is that the consumer-level hydrogen market was and is still sluggish. That’s not going to change anytime soon. Lower efficiency and a lack of infrastructure are big challenges here which will ultimately limit sector growth.
And without consumer-market growth, Plug Power stock isn’t a buy here. Right now, management is guiding for approximately $500 million in bookings in the intermediate term on roughly 20% EBITDA margins. Reasonably speaking, that combination should produce about 25 cents in earnings per share.
Given the current growth trajectory, the company can realistically hit that figure by fiscal 2023. Based on a market average 16-forward multiple and a 10% discount rate, that equates to a 2019 price target for Plug Power stock of roughly $3.
That’s not much higher than where the PLUG stock price trades today.
To be sure, the consumer market could turn into a big growth market at some point in the future. If that happens, Plug Power’s growth narrative will dramatically improve, and this trajectory will accelerate higher. Long-term EPS targets will move well above 25 cents. Therefore, PLUG stock could reasonably soar to levels far north of $3.
But consumer-market growth isn’t happening now, nor does it project to happen anytime soon. As such, you should probably avoid PLUG stock for the foreseeable future.
Bottom Line on PLUG
When it comes to Plug Power, it’s all about the consumer hydrogen car market. If or when that market starts to gain mainstream traction, PLUG stock will shoot higher. Until that happens, though, shares will remain depressed.
For the foreseeable future, the consumer hydrogen car market projects to remain sluggish, which means that Plug Power stock isn’t worth buying, yet.
As of this writing, Luke Lango was long WMT and AMZN.
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