Why Shares of Plug Power Have More Than Doubled So Far in 2019
Soaring more than 107% year to date as of this writing, Plug Power's (NASDAQ: PLUG) stock has been on a tear in 2019. Although shares sank 48% in 2018, an encouraging business update in early January helped to reverse the stock's downward trajectory, while several other factors subsequently contributed to shares rising even higher.
While the stock's recent performance may provide bulls with a sense of vindication, there's nothing to suggest that Plug Power's upward trajectory needs to come to an end in 2019.
Image source: Getty Images.
Starting off on the right foot
Suggesting to investors that the company's top-line growth shows no signs of slowing down, Plug Power provided a business update in early January, which guided for 2019 revenue of $235 million to $245 million. At the time of the update, the company hadn't reported Q4 2018 figures yet, so the closest comparison to be made was to the company's 2017 gross billings, which was $130.1 million; consequently, the forecast indicated revenue growth of about 40% from 2017 to 2019.
The more enticing guidance, however, related to the company's profitability, in particular its earnings before interest, taxes, depreciation, amortization, and stock-based compensation (EBITDAS). On the call accompanying the business update, Andy Marsh, Plug Power's president and CEO, stated, "By the third quarter, the company is projecting continuous EBITDAS positive performance."
Inspired by the outlook, an analyst with B. Riley FBR reiterated a "buy" rating on the company's stock and assigned a $3.50 price target -- an aggressive figure considering the stock closed at $1.51 on the day of the update.
Can't stop, won't stop
Plug Power's climb extended through February. Instead of rising on the company's own merit, however, the stock was riding the coattails of a peer, Bloom Energy (NYSE: BE). An analyst at Raymond James, Pavel Molchanov, upgraded Bloom Energy's stock from market perform to outperform and assigned a price target of $13. According to StreetInsider.com (subscription required), Molchanov acted on the belief that the company will reach breakeven on an earnings-per-share basis and achieve a 6% free cash flow yield in 2019; furthermore, he expects it to reach sustained profitability and feature a 12% free cash flow yield in 2020.
Image source: Plug Power.
Although some may be circumspect about attributing the rise in Plug Power's shares to the upgrade of Bloom Energy's stock, the causal effect is clear: Plug Power's stock closed 19% higher on the day after the upgrade on Bloom Energy's stock -- a day on which no news regarding Plug Power was reported. The analyst's opinion that Bloom Energy can achieve sustained profitability next year resonated with those who recalled Plug Power's update from January and its outlook on its own profitability -- an outlook that may seem more credible now following Molchanov's suggestion that profitability for a fuel-cell company is not an impossibility.
Marching on
Roaring like a lion through March, Plug Power's stock ripped higher as investors responded to management's concerted effort to strengthen its relationship with shareholders. Hosting Ask Me Anything (AMA) sessions on Quora and Reddit, Andy Marsh availed himself to the public and addressed a variety of topics related to the company's opportunities, including the telecom market. In addition, Marsh provided insight into the company's lack of progress in China -- something the company had previously touted as a lucrative opportunity.
While the increased transparency may have moved some investors during the month, others may have been moved by Marsh's decision to make good on his promise to adopt a 10b5-1 stock trading plan; in a $30,000 transaction, Marsh bought 12,286 shares at an average price over $2.44 on the open market. But he wasn't alone. George McNamee, Plug Power's chairman of the board, purchased 100,000 shares on the open market in a transaction valued at roughly $234,000.
...and the march could continue
Should Plug Power report gross billings in its quarterly earnings reports that indicate that the company is on track to meet its 2019 guidance of $245 million to $245 million, I don't suspect it'll do much to push the stock higher. One of the company's strong suits is its ability to grow revenue, and at this point, it seems like investors won't respond to this by itself. On the other hand, if Plug Power continues to report positive adjusted EBITDA as it did in Q4 2018, investors may be more inclined to pick up shares. Similarly, investors may be moved if Plug Power improves its cash flow as it did in 2018 when its operational cash outflow was $58 million, a slight improvement over the $60 million it reported in 2017.
Lastly, Plug Power's stock would surely shoot higher if the company announced a blockbuster deal as it did with Amazon in April 2017. And it's not wild speculation to think that a significant deal is on the horizon. On the company's Q4 2018 conference call, Marsh teased the prospect, saying, "In the coming year, Plug Power is committed to making four major business announcements, and I assure investors some of them will be new e-mobility applications."
The electric takeaway
It's not only the optimistic outlook for 2019, the validation from Wall Street, or the insider buying that account for Plug Power's rise in 2019; it's all of these things taken together. And there's plenty of time left in 2019 for the stock to soar even higher -- something that seems quite plausible if the company makes good on its promise pertaining to profitability or its announcement of a noteworthy deal.
Nonetheless, any of these developments are far from a guarantee, and the stock should still only appeal to those with a high tolerance for risk.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Scott Levine has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.