Connect the power (NASDAQ: PLUG) the stock is at 57% of its high price of over $ 73 this year. However, it is up almost 22% so far in October compared to a 3.8% rise in the S&P 500 Index. Some recent developments have caused investors to rebill the shares of the fuel cell maker. Let’s take a closer look at Plug Power’s recent performance and growth prospects.
Exploiting the green hydrogen market
Plug Power has a long history of loss. The company has mainly focused on its material handling business and has not been able to make it profitable so far. He now appears to be aiming to change that. Plug Power recently announced its financial targets for 2025. These differ in some important respects from its previously announced targets for 2024. The first major point is Plug Power’s increased focus on the green hydrogen market.
In its September 2020 update, Plug Power provided a gross billing target of $ 1.2 billion for 2024. It expected only $ 200 million from its green hydrogen business. However, in its update last week, Plug Power estimated $ 1.5 billion in revenue from green hydrogen business alone by 2025. That’s more than seven times the revenue estimate. of the company for 2024 in this market.
Plug Power expects to generate $ 3 billion in total gross billings by 2025. A smaller fraction of the total revenue from material handling could be viewed as positive, as this business has not been profitable until now. now for the company. However, it is important to note that how Plug Power performs in the green hydrogen sector remains to be seen.
The second notable thing about Plug Power’s latest update is that it expects to generate over 17% operating margin in 2025. In the absence of any further details, there appears to be a delay in achieving of this goal, as Plug Power previously expected. 17% operating profit in 2024. Plug Power does not have a reliable track record of meeting expectations and has missed its targets several times in the past.
Limited growth in the electric vehicle segment
Another new area where Plug Power is trying to expand is the fuel cell electric vehicle segment. FCEVs saw their sales improve in 2021. Around 9,000 FCEVs were sold worldwide in the first half of 2021. By comparison, only 10,000 FCEVs were sold throughout 2020. Hyundai Engine and Toyota are the main players in the FCEV segment, controlling over 90% of the global market. In particular, these two companies are developing their own fuel cells. Therefore, Plug Power faces significant competition in this market.
He partnered with Renault target a 30% share of the European fuel cell light commercial vehicle (LCV) market. Both companies predict 500,000 FCEVs in Europe by 2030. Notably, there were less than 3,000 FCEVs (including light commercial vehicles and heavy goods vehicles) in service in Europe at the end of 2020. Thus, 30% of the European fuel cell light commercial vehicle market is not a huge number at the moment.
Some major car manufacturers, including You’re here and Volkswagen, believe that FCEV may experience very limited growth in the future. So, Plug Power is not in a very strong position right now in the FCEV sector, and this could also be a difficult segment for it in the future.
Plug Power announced two partnerships in October. He partnered with Phillips 66 advance the use of hydrogen in the industrial and mobility sector and develop hydrogen infrastructure to support growth. Plug Power has also partnered with Airbus focus on opportunities in ground support equipment at airports as well as in hydrogen aircraft. Plug Power is already working with Universal Hydrogen, Airflow and Heven Drones to research and advance the use of fuel cells in aviation.
a long way to go
Plug Power operates in a very interesting hydrogen market, which could be huge in the long term. Specifically, hydrogen appears to be a promising option for decarbonizing the heavy vehicle, marine and aviation segments. However, there are several unknowns and it will be many more years before hydrogen becomes a truly viable option. Additionally, alternative fuel and storage options may limit the adoption of hydrogen fuel cells.
Plug Power has suffered losses for two decades and the company’s offerings continue to evolve. He hopes to achieve a positive operating margin by 2025, and a positive net result could still be a few years beyond.
Based on Plug Power’s last quarter revenue of $ 125 million, its price-to-sales ratio is approximately 36 times. Even based on expected sales in 2025, the ratio is around six times. Overall, buying Plug Power stocks at six times their projected sales four years later, with no profit in sight, doesn’t sound appealing to me at the moment. You may want to look elsewhere for opportunities that could make you rich.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.