Plug Power: This Former High-Flyer Faces A Lot Of Uncertainty
May. 11, 2014 3:42 PM ET | 10 comments | About: PLUG, Includes: BLDP
Summary
Numerous dilutive offerings and a history of shareholder disappointment form a negative bias toward the Plug Power’s future, but that might change soon.
The number of recent deals and the Hyundai Hysco joint venture are indicating a better future for the company.
Although there are expectations for high growth in the future, the company has not yet delivered sustainable growth.
A range between $3.00 and $3.50 is the place where Plug Power’s share price might finds its bottom.
Plug Power's (PLUG) share price has lost 70% of its value from its early March high, and the story surrounding the company is full of hype and elevated expectations on the bull side, and utter pessimism on the bear side, with expectations for further price drops (Citron Research has a $0.50 price target). The company is yet to deliver sustainable revenue and earnings growth, although the recent trends are quite encouraging. The stock has yet to find a bottom, and I am looking at $3.50 and $3.00 levels for a possible bottom, but the company needs to deliver on its promises in order to stop the collapse of its share price.
The negative side
There has been a lot of negativity surrounding Plug Power in the last two months, and the consequence is a 70% price decline from early March. The year-long price ascent was disrupted by Citron's report, which valued the stock at $0.50. Citron stated that the company has "a history of broken promises and failure to deliver." While that may be true, I believe that Citron is merely extrapolating past results into the future. Although I am certain that Plug's shareholders are not happy with the massive dilution, it seems necessary, given the company's weak balance sheet and the threat of bankruptcy, so dilution is certainly better than the alternative. On the other hand, the future appears to be changing for the better. The company has made several deals which have significantly increased its bookings, but more on that later.
Another negative catalyst for Plug Power was the statement of Global Equities Research analyst Trip Chowdhry. He said that:
fuel cell cars are a complete failure and a nonevent. A fuel cell-powered car lacks in power density, hence, a typical fuel cell-powered car will go 0-60 miles per hour in 11 seconds, which is much slower than Tesla Model S, which goes 0-60 in 5.4 seconds.
But after all, Plug Power does not make fuel cell cars. The company is involved with trucks and forklifts and plans to expand fuel cell usage into different areas, such as airport support vehicles and refrigerated trucks. I doubt that 0-60 MPH is an issue for forklifts and other areas of Plug Power's potential markets.
The valuation seems on the negative side too. Kerrisdale Capital Management's "best case DCF value" is $2.50, but the estimates from the article may be far too conservative, and around half of the current consensus for 2017 (Kerrisdale's 2017 revenue estimate is $140 million, while the Wall Street consensus is $280 million). If Plug Power delivers what it is expected from it, the value of the company should be much higher than $2.50 in the next couple of years. Cash burn and further dilution should not be issues down the road (perhaps from 2015 or 2016, and the company should have enough cash until then). But this is still a big "if." I would ask Plug Power to "show me the money" in the next couple of quarters in order to get a better picture of the promised execution.