Dear Happy Investor, Buying Plug Power shares seems interesting. The company is growing rapidly within the potential hydrogen economy. However, if we analyze Plug Power shares, we obtain some serious risks. And other notable issues, such as that its ESG score is relatively poor. Still remarkable for a company working on clean energy (if it is green hydrogen).
Buy Plug Power shares or not? We want to warn you. And this analysis will help you understand why. Tip: above all, look at the financial situation for the short term.
On to sustainable (financial) success!
Stock Analysis: Plug Power (PLUG)
Founded in June 1997, Plug Power Inc (PLUG) provides alternative energy technology with a focus on the design, development, and commercialization of hydrogen and fuel cell systems. In a world undergoing a paradigm shift in power, energy, and transportation industries, the company's technology powers electric motors with hydrogen fuel cells, tackling climate change and energy security while improving efficiency and achieving sustainability goals.
Plug Power falls under the category of sustainable stocks. Although its ESG score shows that it still has much to gain on several sustainability aspects.
The company offers:
- GenFuel: a system for delivering, storing, and dispensing liquid hydrogen fuel.
- GenDrive: which powers electric material handling vehicles using hydrogen-powered PEM fuel cells.
- GenSure: a portable fuel cell application designed to meet the power backup and grid support needs of the transportation, telecommunications, and utility sectors.
- GenCare: a maintenance and service program based on the internet of things for GenDrive and GenSure fuel cells, GenFuel hydrogen dispensing and storage products, and ProGen engines.
- GenKey: a turnkey solution for the transition to fuel cell power.
- ProGen: fuel cell system and engine technology used in stationary and mobile fuel cells and also as an engine for electric delivery vans.
- GenFuel Electrolyzer: designed to produce clean hydrogen.
The company's vertical integration strategy sets it apart from other firms in the market. The company intends to offer customers a complete hydrogen solution, from fuel cells to green hydrogen fuel, in an effort to eliminate the "chicken and egg" dilemma. If executed well, Plug's vertical integration strategy may enable it to be a leader in the hydrogen economy as it scales over the next decade.
While investors should expect growing pains along the way and fluctuations in share price, Plug has characteristics that make it the top pick within clean energy hydrogen coverage.
But there is one crucial condition: it must have a profitable revenue model. And so far, the company has not made a profit for many years.
Price Target of Plug Power (PLUG)
According to Market Watch, based on analysts' offering, the average price target for stock plug Power (PLUG) is $35.10, with a high estimate of $78.00 and a low estimate of $18.00.
According to Wall Street Journal, based on analysts' offering, the average price target for stock plug Power (PLUG) is $36.54, with a high estimate of $78.00 and a low estimate of $18.00.
According to Investing.com, based on analysts' offerings, the average price target for stock plug Power (PLUG) is $34.90, with a high estimate of $60.00 and a low estimate of $18.00.
Plug Power's (PLUG) share price outlook sounds promising, analysts say. The only question is: in what time frame? Perhaps PLUG can grow to this level in the long term, but our analysis shows that the short-term price expectation is very likely to be lower than the price on July 2022.
We also addressed this in our analysis of the best hydrogen stocks. Hydrogen is interesting, but these companies are far from making a profit. And in the current economic environment, with rising interest rates, this is a serious risk.
Plug Power shares buy or not based on financial valuation
In this article we will not give an extensive financial analysis of Plug Power, but below you will find a brief summary for inspiration.
- Valuation: despite the gigantic price drop in 2022, Plug Power is still overvalued for the short term. The P/B ratio is somewhat acceptable at 2.07, but other ratios are very unfavorable
- Growth: Plug Power's growth is strong. The expectation for 2022 is almost 80% revenue growth vs. 2021. And another 50% sales growth is expected for 2023 vs. 2022.
- Profitability: Plug Power's profitability is dramatic. This is a huge risk.
- Momentum: the momentum of PLUG shares is also obviously very bad
Plug Power is a pure growth stock. The problem is that it has not been making profits for years. This risk is constantly increasing as interest rates continue to rise. This increase leads to higher interest costs, which puts additional pressure on Plug Power's balance sheet. Moreover, the net present value of future profits is lower.
Of course there is an opportunity here. The short-term outlook seems unattractive. Perhaps we want to buy Plug Power shares for the long term? This is precisely the question. Still, we want to warn you. Be careful when investing in this company.
In our view, we see better opportunities at the moment. We would not buy Plug Power stock, simply because we see other companies with a better chance of high returns. Check out our analysis on the best stocks.
Strengths and Weaknesses of Plug Power (PLUG)
Let's look at some strengths and weaknesses, as an indication of whether buying Plug Power shares for the long term is a good move.
Strengths of Plug Power
- Plug Power products hold a strong brand recognition in the electronics industry as well as the controls industry. Compared to its competitors in the Electronic Instr & Controls industry, it has been able to charge a premium.
- Employee skill development and Talent Management contribute significantly to Plug Power's success.
- Plug Power maintains a first-mover advantage in increasingly crowded markets. Plug Power's market share in the electronic and controls industry is growing rapidly due to its new products.
- The company excels at entering new markets. As a result of its experience in entering new markets and making them successful, Plug Power Inc. has built expertise in the field. The expansion enabled the organization to diversify the economic cycle risk that it faces in its markets and build new revenue streams.
- The company has a large network of reliable raw material suppliers, which allows it to avoid any supply chain bottlenecks.
Weaknesses of Plug Power
- With Plug Power's competitiveness declining in the Electronic Instr & Controls industry, the company's profitability has been affected. The profitability is dramatic and a very big risk.
- The organization can face criticism from environmentalists for its poor waste management practices and inability to integrate sustainability into business operations. Her ESG-score is surprisingly bad.
- It is still unclear how efficient this company is in its operational activities. How much profit can be made here to improve the profit margin?
The hydrogen economy is promising. Plug Power seems to be developing an interesting position to benefit. Sales growth shows this. But the crucial question is: when and how profitable will this company become? We see too many uncertainties at the moment, so we are not buying Plug Power shares. Perhaps you see more opportunities?
Threats and Opportunities for Plug Power (PLUG)
Below we examine some of the threats and opportunities facing the organization.
Opportunities for Plug Power
- Plug Power can grow in international markets by partnering with local players. Plug Power brings global know-how and execution expertise to the table, while the local players have local expertise.
- As the US economy improves faster than any other developed economy, Plug Power will be able to expand in the US market. Plug Power has already proven its ability to operate in the competitive US market.
- With increased technological advancements, manufacturers can produce a broader array of products and services because of increased productivity. That can enable Plug Power to expand into adjacent product categories significantly.
- Because of government regulations, unorganized players are finding it hard to operate in the Electronic Instr & Controls industry. These factors may be an opportunity for Plug Power to grow its customer base.
- A trend of customers moving to higher-end products presents Plug Power with a great opportunity. Its brands have strong brand recognition in the premium segment and offer excellent customer service in the lower segment. The opportunity can be a win-win for the company and can lead to increased profitability.
Threats for Plug Power
- Plug Power's business can be affected by changing political environments, such as the US-China trade war, Brexit's impact on the European Union, and overall instability in the middle east.
- Plug Power faces increasing legal threats resulting from distrust of institutions and the difficulty of enforcing WTO regulations and laws in various markets. It has become increasingly costly and difficult to enforce legal processes
- Competition begins to intensify
Risks analysis of Plug Power (PLUG)
If you want to buy stock Plug Power, you should deeply analyze its risks. As indicated, we see the greatest risk in its profitability. For that reason, we do not want to buy Plug Power shares.
In addition, there are other (practical) risks regarding its shares. Historically, Plug Power's daily returns volatility has been higher than 52 percent of all global equities.
- PLUG moved +/- 14% a week on average over the past 3 months, more volatile than 75% of US stocks.
- The weekly volatility of PLUG (14%) has been stable over the past year but remains higher than 75% of US stocks.
Plug Power has high growth prospects, but it will require significant capital expenditures to support that growth, which is why, while it is forecast to achieve profitability after 2025, it will not produce free cash flows until much later.
Investing in a company at this early stage can be risky because even with much potential, a company might take many years to mature. Do you still want to buy Plug Power shares at this level? Then take into account at least a long-term horizon of 5 to 10 years.
Conclusion: to buy Plug Power or not?
Buying Plug Power shares can be potential in the long run. For the short term, however, we suspect further price decline. Financial ratios, despite high growth, are still unfavorable. Especially in relation to the dramatic negative profit margins. The company expects to have positive margins by 2025. However, that is a serious uncertainty
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