Plug Power Inc

Fundamentals

Plug Power (PLUG) is a fascinating company with a fascinating history and a rather fascinating CEO.

PLUG is in the fuel systems and storage business. It hit the mainstream news rounds when the stock rose literally from pennies to about $12 in stock price. Since then, the stock has fallen back down over 80%. The run up was a bit of bad money chasing overblown momentum, but the fundamentals surrounding the firm did drastically change for the better. All of a sudden the company is signing multi-million dollar contracts and to date, those contracts have come in. Either you believe the growth story and ignore the rest of the fundamentals, or you ignore the growth story and believe the current fundamentals. But, let's start with some facts. This is a 16-year chart of PLUG's revenue (TTM).



We can see revenue is up more than 100% year-over-year. We know that its GenDrive product saw shipments more than double in the prior quarter and the company said that it would unambiguously drive the company to record revenue. GenDrive sales hit 888 units, up from 419 in the first quarter, and even more impressive, the company re-asserted its guidance that 3,300 GenDrive units would be delivered in 2015 along with 15 genFuel systems (Source: The Motley Fool). Those sales altogether are expected to drive $200 million in revenue. As a point of reference, in the trailing twelve months (TTM), PLUG has generated $75 million in revenue which itself is up from just $25 million for the year ending March 2014.

More good news, the stock gapped up hard on Monday, rising nearly 15% on speculation that Home Depot would become a multi-hundred million dollar customer (or more). On Friday, September 18th, a new distribution facility for Home Depot opened that will include 172 Plug Power GenDrive fuel cells and fueling infrastructure. Now, this firm has $75 million in revenue in the last year, so speculation of even a one hundred million dollar new customer would be enormous, let alone multi-hundred million dollars. But, there's another side to the story, and that's why the stock "only" rose 15%.

Back in 2014, Walmart (WMT) announced it would buy 1,700 units from PLUG and speculation swirled (just like with Home Depot) that all of a sudden Wal-Mart was going to switch to hydrogen-powered forklifts. That has come to fruition with a couple of WMT stores coming on line every quarter, but still, the stock is down 50% from the date of that announcement. It was not a game changer. Here's a solid start thought -- this image is form hydrogen.energy.gov.



There are a few misconceptions about his firm that I think need to be cleared up. First, this is not a new firm, it has been public for more than 15-years, it's simply "newly interesting." Also, regardless of the low stock price, its market cap as of this writing is over $390 million. If we look at the net income (after tax profit) for the last 16 years, we can see the company has never turned a profit over any twelve-month period.



Further, the company has been selling stock to fund operations as levered free cash flow over the trailing-twelve-months is also negative. This is not a micro cap. For a company with no profit, no expected profit and sales below $100 million (right now), we can't just blindly say it's undervalued. But, there is an argument that it will be undervalued if it delivers on what appears to be continued promising news and continued large customer signings. There is also an argument that it's overvalued; and here it is:

While the company has been exploding revenue with new orders, it simply is not turning a profit and is really nowhere near it. In fact, in the latest quarter, the firm generated just $0.71 in operating revenue for every $1 in expense. That's atrocious, even for a growing firm. Further, and perhaps more damning, there is yet to be strong evidence that PLUG has created a competitive advantage, or more plainly, a differentiated product. In fact, in a Motley Fool article authored by Travis Hoium, we read:
That's the bearish argument to balance the scales of the bullish argument which sees a company that had $25 million in annual revenue for the year ending March 2014, and should be around $150 million by that same time in 2016. It's pretty clear to see, PLUG has a wildly bullish upside thesis, and a catastrophic risk of failure.