Plug Power (NASDAQ:PLUG) may be one of the most popular alternative energy plays out there. Shares in the hydrogen fuel cell (HFC) company have “crushed it” in the past year. Yet, there are many more emerging leaders in the “green wave” space that make for stronger investing opportunities than PLUG stock.
Investors have priced-in too high of expectations into Plug. Don’t get me wrong, this company is still growing. Analyst consensus calls for sales to surge more than 46.5% in the coming year. But, this high level of growth may not warrant the stock’s very high forward price-to-sales multiple (72x).
Besides issues about valuation, there are other concerns to consider. Between risks that its flagship forklift HFC business faces challenges, and the possible risks from its continued shareholder dilution, there’s not much to get excited about here, as shares change hands at around $65 per share.
The large-scale shift to clean energy isn’t going away. But, in terms of profiting from this megatrend, I’d suggest skipping out on this played-out “green wave” stock. Instead, consider some of the other names that are doing great in this space.
With all of that in mind, let’s take a deeper look at why you should pass on Plug Power.
Positives Priced Too Much Into PLUG Stock
Up nearly 100% year-to-date alone — and up nearly 14-fold in the past twelve months — bullishness on Plug Power stock remains at record highs. But, how much of this is based on hype? And how much is based on fact?
It’s true that many developments in the past year bode well for this company. Governments and major corporations around the world continue to pivot away from fossil fuels. As its CEO Andrew Marsh pointed out back in January, Democratic party control of both the White House and U.S. Congress could be a “great time for the hydrogen fuel cell industry.”
Yet, these factors are more than reflected in today’s stock price. Investors have taken these small morsels, and they have overplayed their hand. The coming years may be bright for Plug Power. But, I’m skeptical its going to be on par with what those buying the stock today expect.
So, how does it hurt PLUG stock going forward?
For now, investors may be focused on the aforementioned trends working in its favor. But, since several legitimate concerns have yet to weigh shares down, those buying in now are taking on a lot of risk. And there are likely only minimal potential returns for that risk.
Recent ‘Short Report’ Highlights Key Issues
With its epic ride from $2 to $65 per share, many bears lost their shirts trying to call out the many flaws with this company. But, while this stock has humbled many bears, another vocal short seller has decided to take a shot.
Sure, this critic of PLUG stock may not be focusing on the big picture. Plug’s current flagship business (selling HFC technology for forklifts) could fail to grow as fast as expected. But, the company may be more active in other lucrative markets by the time that happens. As seen from its recent deals in Asia and Europe, fuel cell applications go way beyond just forklifts.
Yet, any sort of hiccup in this unit would be detrimental to its stock price. In fact, there are two main ways its forklift unit could stumble. First, the threat of end-users going with battery-powered forklifts instead of ones fueled by Plug Power’s hydrogen fuel cell. This could limit how much this business can continue to scale up.
Second, its two primary customer (large retailers), who received PLUG stock warrants in exchange for buying the company’s forklift HFC technology, could end their contracts once these warrants vest.
Along with concerns with its forklift HFC unit, there’s the longstanding issue of shareholder dilution. With its stock price surging, it hasn’t mattered much that the company has raised capital by selling new shares. This is still the case today, as the stock hasn’t been affected much by a just-completed $1.5 billion offering.
However, just because the negatives haven’t been priced-in yet, doesn’t mean it won’t eventually happen. And, once it eventually does, this top-performing stock could quickly reverse course.
Look Elsewhere for a Clean Energy Play
Until President Biden’s $2 trillion climate plan hits some road blocks, bullishness on Plug Power stock will likely continue. Sure, even if we fail to see game-changing policies out of this administration, the clean energy megatrend isn’t going away.
But, at today’s valuation, this tailwind is more than reflected in its share price. And, given the many concerns on the table, there’s too much risk, and not enough in terms of potential gains. Consider the stronger plays emerging now in the clean energy space, and stay away from PLUG stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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