Plug Power: Look for a Better Entry Point

Plug Power (PLUG) had disappointed Wall Street with its second-quarter results in August. Consequently, the stock tanked to its 52-week low with little momentum on the upside. The company has lost around 60% of its market capitalization in the past one year and it does not come as a surprise, since it has trailed analysts’ expectations consistently.

Positives to watch

Plug Power’s revenue for the quarter had increased 38.6% from the year-ago period to a record $24 million, while losses widened to 6 cents per share compared to a loss of 3 cents in the same period last year.
Analysts, on the other hand, were expecting a loss of 7 cents per share on revenue of $25.23 million. Although the numbers lagged the consensus estimate, but the important fact is that its top line has improved considerably on a year-over-year basis. Moreover, Plug Power expects its top line to cross $30 million in the third quarter on the back of strong bookings for the entire year.

In addition, the gross margin across its various product lines has improved. For instance, gross margins have improved on its fuel-cell offering from 4% to 26% in the past one year. This was achieved through design simplification, purchasing power and scale manufacturing.

Growth prospects are strong

Apart from this, the company has a strong customer base with repetitive orders from some of them. For example, Walmart is a steady customer for Plug Power’s GenKey drive and Gen Fuel. Currently, four sites have already been deployed and the company will deploy 9 to 10 full GenKey sites for Walmart this year with further expansions in 2016. This will enable the company to more accurately forecast the business and properly support the customer with on-time deployments and ongoing care. Likewise, Plug Power has similar value customers such as Kroger that are using its complete GenKey solution.

To further increase its reach, Plug Power completed the acquisition of HyPulsion for $11.5 million. This is a decisive move, which will strengthen its foothold in Europe even as it anticipates that Europe will have significant contribution in the near term. As per Bloomberg, “The company expects its market to double with the expansion into Europe, according to the statement. The deal will help the company reach its target of $500 million in annual sales.”

Conclusion

Hence, Plug Power is making the right moves that will strengthen its business in the days to come. Despite these positives its valuations at current levels seem quite over valued as it has a P/S multiple of 4.48 compared to the industry average of 0.95. Although, it does not have any trailing or forward P/E but analysts anticipate its earnings to grow at a CAGR of 25% in the next five years. Therefore, in the light of these facts it seems prudent for investors to avoid this stock for the moment and look for a better entry point.
Published on Oct 10, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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