Investors looking to gain exposure to clean energy companies can consider buying shares of Plug Power (PLUG). Valued at a market cap of $7.4 billion, Plug Power provides hydrogen fuel cell (HFC) turnkey solutions. Its innovative technology powers electric motors with HFCs as sectors such as power, energy, and transportation are looking to address climate change and energy security issues.
Plug Power has successfully created the first commercially viable market for HFC technology, allowing the company to benefit from a first-mover advantage. It has deployed more than 60,000 fuel cell systems for e-mobility, which is the highest in the world. Plug Power is also the largest buyer of liquid hydrogen as it already operates a hydrogen highway across North America.
Due to its long-term tailwinds, Plug Power stock has surged over 500% in the last five years. Despite its outsized gains, PLUG stock trades 83% below its recent highs, which suggests it has burnt massive investor wealth since early 2021.
Let’s see if it makes sense to own shares of Plug Power at the current valuation.
A Look at Plug Power’s Financials in Recent Years
Plug Power delivers a meaningful value proposition to its base of enterprise customers. This includes lower operational costs, environmental benefits, and efficiency gains. The company is now building a robust hydrogen ecosystem that spans the production, storage, and transportation of liquid green hydrogen, driving the adoption of hydrogen at an accelerated pace, which should enable customers to decarbonize the world and meet their sustainability goals faster.
Driven by sales of fuel cell systems, Plug Power has increased revenue at an annual rate of 40% in the last 10 years. Its sales have risen from $230 million in 2019 to $701 million in 2022. Despite its top-line growth, Plug Power remains unprofitable and reported net losses of $724 million in 2022.
The company has plowed in billions of dollars to build its hydrogen-powered ecosystem. Earlier this year, it showcased a fuel cell manufacturing facility in New York that spans 350,000 square feet. To support the rising demand for HFCs, it has invested in hydrogen plants in several other U.S. states as well as in Finland.
But these expansion plans have come at a massive cost to shareholders. Due to its significant losses, Plug Power has funded its cash burn by raising equity capital which in turn has diluted shareholder wealth. For instance, in the last 10 years, the number of outstanding shares for Plug Power has increased to 589 million from 38 million.
What's Next for Plug Power Stock Price and Valuation?
A report from Precedence Research expects the global green hydrogen market to touch $332 billion in the next nine years, indicating a growth rate of 55% annually. Comparatively, Plug Power is forecast to increase sales by 83.5% to $1.3 billion in 2023 and by 53% to $2 billion in 2024. Analysts also forecast Plug Power stock to narrow its losses from $1.25 per share in 2022 to $0.35 per share in 2024.
The company claims it is at an inflection point and reported positive gross margins in recent quarters. Its wide portfolio of products with stellar manufacturing capabilities also makes Plug Power a top stock for long-term investors. Moreover, 25% of its sales will be generated from Europe this year, providing it with geographic diversification, and 60% of sales will be non-material handling in nature, boosting profit margins further.
Plug Power is optimistic about its growth in the upcoming decade. It expects to end 2026 with $5 billion in sales, a gross margin of 30%, and an operating income of 17%. Moreover, sales in 2030 are forecast at $20 billion, with a gross margin of 35% and an operating margin of 20%.
The Final Takeaway
Plug Power is a high-risk investment, given it is yet to report consistent profits. It will continue to scale its manufacturing capabilities which means shareholders should expect further dilution as the company ended Q1 with $1.64 billion in cash and $920 million in debt.
But if Plug Power can achieve its lofty revenue and profitability targets, it will help investors derive outsized gains. If sales are really able to reach its $20 billion goal in 2030 and Plug Power reports a net income of $3 billion, the stock could be valued at $60 billion, given a price-to-earnings multiple of 20x. So, PLUG could surge significantly in the next seven years, making it a lucrative investment right now for those with a high-risk appetite.
Out of the 21 analysts covering Plug Power stock, 13 recommend a “strong buy,” 1 recommends a “moderate buy” and seven recommend a “hold.” The average 12-month price target for PLUG stock is $20, which is 60% above the current trading price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
