PLUG Stock Has Compelling Risk/Reward Ratio
Green energy stocks, like many other stocks, have been battered over the last year to levels that make them interesting. That’s the case with Plug Power Inc (NASDAQ:PLUG), a rapidly growing provider of innovative hydrogen fuel cell solutions.
The company’s technology makes sense at a time when there’s a push toward carbon neutrality. Its turnkey solutions use hydrogen fuel cells to power electric motors in motive and stationary products.
The company has delivered more than 50,000 fuel cell systems to clients worldwide. (Source: “About Plug Power,” Plug Power Inc, last accessed December 22, 2022.)
At Plug Power stock’s high point of $75.49 in January 2021, Plug Power Inc had a market valuation of $43.9 billion after generating revenues of $306.5 million in 2020. With a valuation that was 143 times its revenues, Plug Power clearly was excessively priced.
Plug Power Inc’s market valuation has since fallen by about 80% to roughly $8.1 billion. PLUG stock is still highly priced, but it’s far more affordable than it was during the run-up to its high.
Recently, Plug Power stock has been trending lower in a downward channel. After mounting an impressive rally from their March 2020 low to their record $75.49 in January 2021, shares of Plug Power Inc have plummeted. On the plus side, there’s some support around $13.00–$13.50.
PLUG stock rallied to a channel resistance level in August, but that move failed to hold. Plug Power stock is back below its 50-day and 200-day moving averages (MAs). There’s a bearish death cross pattern in play, with the stock’s 50-day MA of $16.67 below its 200-day MA of $21.05.
Chart courtesy of StockCharts.com
Failing to break higher could see PLUG stock move lower in the channel toward $10.00.
If the shares of Plug Power Inc hold, there could be a move toward their MAs. A breakout above the 200-day MA could see Plug Power retest channel resistance around $30.00, representing a potential upward move of 114%. This presents a compelling risk/reward opportunity for aggressive risk capital.
Plug Power Inc Expected to Generate Revenues Above $1 Billion
For the past four years, Plug Power has reported double-digit-percentage revenue growth.
The company’s revenues increased by 402% from $100.2 million in 2017 to its record $502.3 million in 2021. Plug Power Inc’s revenue compound annual growth rate (CAGR) from 2017 through 2021 was 49.7%.
Analysts expect the company to continue increasing its revenues by double-digit percentages. They estimate that Plug Power will increase its revenues by 65.0% to $829.1 million in full-year 2022 and by 67.6% to $1.4 billion in 2023. (Source: “Plug Power Inc. (PLUG), “ Yahoo! Finance, last accessed December 22, 2022.)
|Fiscal Year||Revenues (Millions)||Growth|
(Source: “Plug Power Inc.” MarketWatch, last accessed December 22, 2022.)
Plug Power Inc trades at 5.8 times its consensus 2023 revenue estimate. That’s still premium pricing, but not outrageously expensive compared to its valuation in 2020 and 2021.
The key for the company at this stage is to continue increasing its revenues. Profitability and positive free cash flow are still years away.
Plug Power Inc’s cash of $3.1 billion on its balance sheet will allow the company to focus on expanding its business.
Institutional investors like Plug Power stock; 881 institutions hold a 59.7% stake in the company’s outstanding shares. Company insiders have also been buying shares, which is a good sign. Insiders added 200,304 shares of Plug Power Inc over the last six months and currently hold 10.3% of the company. (Source: Yahoo! Finance, op. cit.)
PLUG stock might be appropriate for investors who are seeking a decent risk/reward green energy trade that could have high price appreciation. Traders who decide to add Plug Power stock to their portfolios should probably do so in small tranches.