Hydrogen Fuel Cell Company Shares Plug in the power (NASDAQ:PLUG) were on the grid recently, experiencing a 35% drop in August. An Aug. 9 earnings report showed Plug’s sales grew a solid 72%, despite a worse-than-expected 50% loss — contributing to the company’s stock decline.
And yet, one analyst isn’t ready to throw in the towel on Plug just yet. On a recent note, Jefferies’ Dushyant Ailani assumed Plug Power coverage for investment banking. And while Ailani adjusted Jefferies’ price target for Plug stock to just $12 from $16, the analyst maintained Jefferies’ “buy” rating on Plug.
Which kind of makes sense. After all, if Ilani believes the stock is worth $12 per share, the analyst can still make a 40% profit from current levels, assuming he is right about Plug’s stock price.
But is $12 a fair price?
Well, let’s think: As Ilani reports, after 12 months of construction work, Plug is still ramping up its Georgia “green hydrogen” production process. Already, this plant is producing hydrogen gas at a rate of three tons per day (tpd). But the fuel source that PLUG is producing is liquid hydrogen, which can be easily transported and used to fuel hydrogen fuel cell vehicles. Plug had hoped to make liquid hydrogen by the end of August, but that timetable has been pushed back a bit to the end of the quarter – so September.
Plug hopes to increase production to 15 tpd by the end of next month or early October. Then in Phase 2 of the project, Plug hopes to double that production rate to 30 tpd in the second quarter of 2024.
So… good news, right? Well, not exactly. For one thing, Plug isn’t currently producing entirely “green hydrogen” — that is, hydrogen split from water molecules using energy from renewable energy sources. Instead, the company is currently producing hydrogen from “grey” sources – natural gas. And for another, Plug is still losing money as mentioned above. Indeed, even after the company starts producing liquid hydrogen and quintal, the company’s overall “gross” margins will probably still be negative 8 percent this quarter, he said.
Translation: For every $1 of hydrogen plug sold, the company loses $0.08 — before adding in losses on operating costs, interest on nearly $1 billion in debt, and so on. On the bottom line, therefore, you can probably guess that Plug’s net profit margin will be worse than negative 8%. In fact, Plug’s net profit margin is currently negative 95 percent.
However, the fact that, after all, Plug is valuing it not on profits (which Plug doesn’t have), but on Plug’s revenues (which it does) doesn’t seem to bother Ilani. According to the analyst, the fair price paid for Plug is about 4.5 times the $2.4 billion in sales the company may or may not achieve by 2025.
Overall, Wall Street has not given up on PLUG. Analysts have submitted 18 analyst reviews in recent weeks, and these include 13 Buys with 5 Holds, with a consensus rating of Medium Buy. PLUG’s stock price is at $8.54 and has an average price target of $18.97, up ~122% from that level. (look out PLUG stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.