Plug Power (PLUG) is a strange sort of business. In more than 20 years of operation, the hydrogen fuel cell company has sold a lot of fuel cell systems, but never earned a profit, and never generated positive free cash flow. Instead, Plug funds its operations mainly by issuing and selling new shares — over and over again. In fact, from 2000 to 2020, Plug’s share count has grown from 4.4 million to 399.7 million — i.e. grown 90x in size.
But what a difference a pandemic makes, and what a difference (the hope for) a Green New Deal!
As COVID-19 unhinged stock markets from ordinary rules for valuation, and the prospect of a Democratic “Blue Wave” showering taxpayer dollars all over the renewable energy industry, Plug Power stock has gone on a tear. Shares of the fuel cell company are up more than 5x from their price at the start of the year, and now trade at nearly 22 times trailing sales, and 34 times book value, despite a total lack of profitability.
This doesn’t concern H.C Wainwright’s Amit Dayal, however. In a note published following Plug’s Q3 2020 earnings results, the analyst argues that Plug Power’s valuation is really all about the future — a future as far off as 2024… or even 2030.
Plug Power, you see, may not be earning profits right now. But Plug management has repeatedly promised in recent quarters (and repeated the promise on Monday) that in 2024 it will earn $200 million in operating profit and record “gross billings” of $1.2 billion.
Now, “gross billings” aren’t a financial metric often recited by publicly traded companies. To translate the term into something more familiar to investors, therefore, Dayal calculates that Plug’s revenues in 2024 will be about $1.1 billion — more than four times the company’s trailing revenues currently. Dayal further projects that by 2030, Plug will grow this number even further — to $7.4 billion in annual sales. And if this number is correct, says Dayal, the company will achieve a 10-year compounded revenue growth rate in excess of 38%.
That’s a staggering sum, but in fact, it’s not entirely unrealistic. In fact, over the past five years alone, Plug has grown its revenues at about a 29% compounded rate. While acceleration to 38% certainly won’t be easy, Plug’s history of revenue growth suggests it does lie within the realm of possibility.
And yet, that’s not really the point, is it? The point of a profit-seeking venture like Plug should in theory be not just to “sell stuff,” but to earn profits from selling stuff — and it’s here that Plug Power has historically fallen short. In Q3 2020 for example, Plug grew its sales 80% (so twice as fast as Dayal’s projected sales growth rate). Problem was, the company also doubled its net loss on those sales, from $18.2 million a year ago, to $39.4 million in Q3.
Despite this huge Q3 loss, and despite Plug’s unbroken history of similar losses, Dayal insists that Plug’s rapid sales growth will eventually bring the company to profitability — indeed, he projects net profits by 2023, which is even sooner than Plug is promising. With this prospect in mind, he has reiterated his “buy” rating on Plug Power stock, and doubled his price target $30. (To watch Dayal’s track record, click here)
All in all, Plug’s strong share appreciation has pushed the stock price above the consensus price target. Shares are selling for $23, and the average target of $20.89 implies a 9% downside. Paradoxically, the stock holds a Strong Buy consensus rating, based on 10 Buys and no Holds or Sells. (See PLUG stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
