Plug Power: Should You Be Buying?

Plug Power (PLUG) has been reporting continued year-over-year top line expansion primarily due to superior sales for the installation of hydrogen infrastructure and greater sales for GenDrive units.

Strong traction

Plug Power is strategically delivering continued year-over-year product cost reduction through scaling up its current development projects, focused design simplification and by leveraging alternative suppliers. Plug Power has uniquely focused on systematic failures, right-sizing of staff and training misdiagnostics to successfully achieve 75% reduction in service cost breakdowns.

Plug Power recognized solid revenue by selling over 1,221 GenDrive units as against sales of 835 GenDrive units last year.
For GenCare services, Plug has nearly 22 hydrogen infrastructure locations and about 8,115 GenDrive units under the key service agreements.

For the GenFuel agreements, Plug offers hydrogen fuel to key customers under its GenKey contribution where the company recorded 22 major customers under the deal and contributing to the third quarter revenue as against just four customers last year.

The enhanced GenDrive unit sales, solid GenKey offering to customers coupled with the continued product and service cost reduction efforts being implemented by the company has caused Plug to deliver impressive margins for the quarter.

The continued investments in enhanced commercial activity and additional investments in effective capital with inventory development program scheduled for the fourth quarter has consumed $13.0 million of net cash utilized in the key operational activities during the third quarter.

Strong bookings growth

Plug Power reported over $50 million worth of bookings for the third quarter and illustrated top line growth for over 1,200 units during the quarter, and currently has over 9,000 units operational on the field. At present, Plug has approximately $166 million worth of bookings which is about 83% of the company’s objective for the quarter. Going forward, the company has set target to install nearly 15 GenFuel hydrogen dispensing and storage systems for the complete fiscal year 2015.

Plug Power is strategically employing its cash flows towards significant growth opportunities while increasingly growing the bookings count and value for the quarter.

The hydrogen fuel cell development company estimates to reach an annual revenue target of $500 million by 2020 and record 35 percent of key gross margins during the period through strong sales forecasted to be achieved from major fork lift truck manufacturing companies and Walmart.

Plug Power is expected to be supplying 14,000 GenDrive units per year from the advanced Latham facility by improving its production capacity from 12,000 units per year to 14,000 fuel cell units per year and thus, achieving $500 million of consolidated sales for the year.

Plug Power is forecasted to deliver sustainable and impressive year-over-year long-term growth as witnessed from the company’s target of expanding its annual GenDrive unit production by enhancing its production capacity.

Ratings position

TheStreet Ratings team rates Plug Power Inc. as a “Sell” with a ratings score of D and primarily driven by several of the companies weaknesses which are believed to outweigh any of its strengths.  The company's weaknesses are observed in several areas, like disappointing cash flow from operations, weak profit margins and usually poor historical stock price performance.

The consensus estimate among 4 polled investment analysts evaluating Plug Power Inc. suggests that the company would outperform the market. This consensus estimate is maintained since the investment analyst’s sentiments got better on Jul 28, 2015. The earlier consensus estimate suggested investors to hold their position in the company.

There’s a mix of investor’s sentiments about the growth prospects of Plug Power, some suggesting strengths while others weaknesses and thus, making it hard to judge the company’s actual performance.

Conclusion

Overall, the investors are advised to “Hold” their position in Plug Power Inc. looking at its poor growth prospects with PEG ratio of -0.33, indicating no growth but decline compared to the solid industry growth average of 0.75. The profit margin of -43.62% suggests no profit but loss. However, Plug has a healthy financial position with significant total cash of $85.01 million against weaker total debt of $9.65 million, encouraging the company to continue with its daily operations profitably.
Published on Sep 22, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

Posted in ...