- Plug Power’s Q1 results show another miss in earnings’ projections but gross profit margin improvement is boosting Plug Power stock optimism.
- The company’s projections of growth by 2025 at CAGR of 105% are highly inflated and many investors are stepping aside until further evidence to justify those expectations.
- The hydrogen market is booming and even though the electric battery segment should outpace infrastructure growth, hydrogen fuel cell technology stocks are poised to rise.
As governments and companies seek to transition away from fossil fuel energy and into not only clean but also cheap new energy sources, hydrogen fuel cell technology has been booming in recent years. Despite being neglected and under-researched historically, hydrogen fuel is making a come-back and companies like Plug Power (NASDAQ:PLUG) have been seeing a significant flow of investor interest since 2020 and so has the Plug Power stock.
Plug Power is developing hydrogen fuel cell systems for the industrial off-road and stationary power markets. The company wants to power data centers and distribution hubs, become one of the biggest green hydrogen production companies and make hydrogen cost-competitive with fossil fuels in the next couple of years. Plug Power is a company building the hydrogen economy and already is the largest buyer of liquid hydrogen in the world and has built the most hydrogen refueling stations than any other company.
Is Plug Power stock buy or sell? I think based on fundamentals and the technical information below, the Plug Power stock is a buy right now for risk-averse investors or a hold and wait for a breakout.
Q1 Earnings Overview
The company reported its Q1 earnings just recently – 22nd of June. It delayed the release a few times due to some accounting mistakes the company announced in March 2021 for 2018, 2019 and the first three quarters of 2020. That event raised doubts about the company’s management and because of some other peers’ poor results – doubts about the sector as a whole. The Plug Power stock plunged 76% at around $18 in May from early 2021 highs but it’s been recovering since then.
The Q1 earnings were quite mixed and showed a painful picture of yet another loss – 12 cents EPS and -$72 million in sales. However, the Plug Power stock price rose 14% after the release and didn’t seem to care about negative revenues. The earnings figure missed the expectations but revenue was higher than expected and gross margin improved from -24% in Q1 2020 to -17% in Q1 2021. According to the company, the expenses were larger in Q1 due to higher natural gas prices because of the Texas freeze which drove hydrogen prices up. That Plug Power stock news worried investors on future margins due to dependency on natural gas prices.
However, with healthy cash reserves of $4.4 billion and only $330 million in debt, the company seems well-positioned to fund expansion for a while which calmed investors’ nerves a bit. Plug reiterated the revenue growth projections for Q2 at $115 to $120 million and $475 million for 2021. Based on projections, the company will quadruple in 2021 compared to 2020. And that is followed by a 56% increase to $722 million in revenue in 2022, a further 54% rise to $1.11 billion in 2023 and another 52% increase to $1.68 billion in 2024.
That growth is mindblowing to say the least and should be taken with a grain of salt. The CAGR of Plug represents 102% for the time period which outpaces the growth of the hydrogen economy itself, not to mention the growth of renewable energy and the electric battery sectors.
The renewable energy sector is registering a CAGR of 6.1% till 2025, while the electric battery market – at 18% from 2021-2025 with the hydrogen market – at 6.09% for the same period. For the US market only, hydrogen is expected to grow at 36% as the fuel cell sector is gaining momentum from new infrastructure funding.
Even if the company misses the tight deadlines for those large revenue growth projections, we could expect it will reach those targets eventually. This could lead to a great return on investment in the next 5 to 8 years that could even outperform the overall market. Some other factors support the bullish Plug Power stock future – the company has a large list of new partnerships that is just growing by the minute. It is also announcing an expansion of green production capacity with new production plants on its timeline.
The Acciona partnership announced in February 2021 will develop green hydrogen projects across Spain and Portugal and will help the companies gain a 20% share in Spain and Portugal’s green hydrogen market by 2030. Plug announced in June it entered a joint venture with French car-maker Renault to develop hydrogen-powered light commercial vehicles. During the quarterly report, the CEO mentioned a fifth customer (undisclosed for now), next to Amazon, Walmart, Home Depot, and GM, that will bring in $25 million for Q2.
It also plans to build the biggest green hydrogen production facility in North America, located in New York. It announced in March another hydrogen production plant in Pennsylvania together with Brookfield Renewable Partners and another one in Camden County, Georgia. The expansion of these facilities is part of the company’s plan to supply 500 tons per day of green hydrogen by 2025 and 1,000 tons per day globally by 2028.
The new partnerships and expansion plans are definitely supporting investors’ optimism about the stock, so it comes at no surprise why it surged after the earnings report. The fifth customer is signaling another growth stream.
However, it’s also easy to find the case for the bearish scenario. The company’s expectations seem inflated given the uncertainty of the industry they operate in. so the Plug stock could suffer down the line from missed results. The battery technology – the main competitor of the hydrogen sector, is also getting better and cheaper.
Not to mention, battery-electric infrastructure is far outpacing the one for hydrogen. This is one of the main factors boosting large scale adoption. There were 2,115 EV charging stations in 2020 vs 553 hydrogen refueling stations worldwide in 2020. In the US alone, if Joe Biden’s massive infrastructure and jobs proposal gets passed, a national network of 500,000 EV chargers would be built. The massive expansion of EV infrastructure would negate the primary hurdle for widespread adoption of EVs and long haul trucking. That would hurt hydrogen adoption as even though governments and companies are committed to hydrogen, it is not likely that the infrastructure expansion rate will outpace the EVs’ in the near to medium term.
The technical analysis of the Plug Power stock chart shows potential for upside in the short-term. There is an inverse head and shoulders formation on the daily chart and it will signal a buy if the price breaks out the neckline around $36 at the moment.
If the breakout fails, that would confirm the bearish scenario and the stock’s weakness to move higher for the time being. That scenario being accomplished would confirm investors are wary at the moment and would rather wait for more concrete profitability signs from the company.
On the other hand, a move high above $36 – $37.60 resistance area would signal the market’s appeal for hydrogen-technology investments and could see the next resistance at $54. If next quarterly results confirm the positive Plug Power stock forecast painted by the management, it could easily challenge the 2021 high around $75. In fact, $80 seems like a reasonable target price for 2021/2022 based on growth results meeting expectations.
A further pressure on the hydrogen market expansion are the cost constraints and delays in green hydrogen production plants constructions announced by Plug. That could prevent the stock price from moving beyond $54 and could push it towards current levels and even May lows. The stock could see sideways trading between $20-$54 for a while before any profitability comes up on the company’s income statements.
Plug Power’s ability to develop green hydrogen production and charging infrastructure would determine its long-term bullish outlook. According to my Plug Power stock analysis, it’s wise to think twice before investing in this company as current growth projections cannot be justified firmly. Any downward revision would put the stock under pressure to move up in the near term. I’m bullish on the company’s long-term prospects but I need to see more proof of the validity of its three-year projections.