Plug Power a Leading Play in Fuel Cells, But Case for Growth is Tricky

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Plug Power a Leading Play in Fuel Cells, But Case for Growth is Tricky

By Yasin Ebrahim and Geoffrey Smith — Plug Power (NASDAQ: PLUG ) has surged more than 1000% over the past 12 months, but Is it time to pull the plug on the hydrogen's fuel cell company's shares?’s Yasin Ebrahim argues the bull case for Plug Power, while Geoffrey Smith argues why investors should steer clear.

The Bull Case

A more than 10-fold rally in 12 months? That's often the cue for the naysayers to jump on the "over valuation" bandwagon, and call time on a rally.

But this rally has not been driven on a diet of hopium and momentum, but rather signs the company's hydrogen fuel cells are poised to play a big role in the alternative energy space.

The company's core business, material handling – predominately driven by putting fuel cells into forklifts used in warehouses by Amazon (NASDAQ: AMZN ), Walmart (NYSE: WMT ) and Home Depot – has been gaining traction.

Over the past year, the pace of its growth has continued to improve. The company recently raised its full-year billing guidance after reporting quarterly growth of 73.4% in Q3 and 68% in Q2.

Its material building business, which has a potential total addressable market of around $30 billion, is dwarfed by that of electric vehicles boasting a potential market of $200 billion, so the need to make a meaningful push into EV is clear.

In recent months, the company has made progress on objectives that will pave the way toward its goal of expanding its technology into on-road applications.

Plug teamed up with French automaker Renault to enter the European light commercial vehicle market, targeting over 30% share of the fuel cell-powered light commercial vehicle market in Europe.

In another move that highlighted the promise of the company's fuel cell technology, Plug Power secured a $1.5 billion strategic investment from SK Group to provide hydrogen fuel cell products to South Korea and wider Asian markets.

The recent progress confirms Plug Power as the leading hydrogen and fuel cell play.

"We believe with partners such as SK Group and Renault, the company essentially has state-level backing to accelerate hydrogen and fuel cell commercialization in Asia and Europe,"  H.C. Wainwright Amit Dayal said.

Growing evidence of Plug Power's progress in sectors including transport and power generation - that many say hold sway for the hydrogen economy to fulfil its promise as the missing piece of energy puzzle - suggests there is further room to go.

The Bear Case

Plug Power is in a bubble inflated by a collective mania on the part of relatively uninformed retail investors for anything that smells of the future, a bet that billions of subsidy dollars will somehow create a technology that generates not only super-clean energy but also positive free cash flow over the long run.

Plug Power isn’t worth half of what the stock market says. But you don’t need to take my word for that. You can take the word of the companies who believe in it and who need and want it to succeed in order to succeed themselves, companies that have looked a lot harder at its technology and balance sheet than those squeezing the stock higher through the options market this week.

SK Group, the Korean company that agreed to invest $1.5 billion for a 9.9% stake in Plug, did so at a price of $29.29 a share. In response to that very same news, retail investors were buying the same share at over $70 on Wednesday, and even though it gave up 4.3% on Thursday, it’s still trading at over twice what SK paid for it.

The other strategic partnership announced in the last week is also very likely less than meets the eye. Sure, it has locked up a strategic partner for vans, a particularly promising vehicle segment, in a deep and broad market with abundant subsidies for green energy. On the downside, it’s Renault SA (PA: RENA ) – a French company unlikely to have a meaningful presence in either the U.S. or China, and which lags rivals such as Ford Motor Company (NYSE: F ), Volkswagen (DE: VOWG_p ) AG (OTC: VWAGY ) Pref ADR (OTC: VWAPY ) and Stellantis (the new holding company for Peugeot (OTC: PUGOY ) and Fiat Chrysler). Financial details of who will provide how much money for the JV and over what timeframe were conspicuous by their absence.

It’s true that the future that Plug Power has been promising for 20 years looks a more realistic prospect than at any time during its long, unbroken and glorious series of losses. And the company loses less money per share now than it used to, even if it is widening in absolute terms. But its valuation, at over 10 times trailing sales, is divorced from reality.

Hydrogen remains the longest of long-duration tech bets. Any profits it makes in the next 10 years will be due to subsidies which look secure today but which many governments may struggle to sustain if there should ever be an increase in their borrowing costs. Unless your investment strategy is simply to raid the public purse, there are better and safer returns to be had elsewhere.

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