Plug Power (NASDAQ:PLUG) stock has been one of the darlings of Wall Street in 2020. Year-to-date, PLUG stock is up over 280%. But that metric tells only half the story for the year. That proverbial $1,000 invested in the shares of the hydrogen fuel cell maker in early spring would now be worth more than $4,000. What’s behind the rise?
The market seems to be coming around to the conclusion reached in 2017 by Argonne National Laboratory that “fuel cells are utilizing domestically produced natural gas to power to retail stores, data centers, production sites and other company facilities, greatly reducing emissions and doing so at a cost that can be competitive with the local electric grid in some states.”
The report continues, “Fuel cells are also competing in the material handling market, with companies finding value in improved operational efficiency and cost savings using fuel cells in forklifts and other vehicles over battery units.”
As a result of its rapid move in the past six months, PLUG stock has become a momentum stock. It is also among the top 100 most popular stocks on online brokerage firm Robinhood. The stock exhibits wide daily swings, especially whenever there is news regarding alternative energy sources.
Let’s take a closer look at what to expect from the company through the end of the year. If you’re not yet a shareholder, you may consider investing in Plug Power, especially if the price declines toward $10.
Heavy Lifting Boosts PLUG Stock
Material handling industry — like forklifts — is Plug Power’s core market, where it is the leader across North America. Its fuel cells are an alternative to lead-acid batteries. The company specializes in technology that uses hydrogen as fuel for vehicles both small (warehouse forklifts) and large (delivery vans and airport safety equipment).
Plug Power’s clients include Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), Kroger (NYSE:KR), SuperValu (a wholly owned subsidiary of United Natural Foods (NYSE:UNFI), Wegmans, and Switzerland-headquartered Aryzta.
Earlier in August, Plug Power reported solid second-quarter earnings. Revenue came at $68.07 million for the quarter ended June 2020. A year go, the number was $57.07 million. Quarterly loss was 3 cents per share, compared to a loss of 8 cents per share a year ago. Both metrics were better than expectations. Since the release of the results, PLUG stock is up over 30%.
Management said, “as of year-end 2019, Plug Power’s products were moving 25% of the retail food and groceries through the United States. In the first quarter of 2020, Plug Power reported that number had risen to approximately 30% as demand peaked.”
Guidance for the Q3 gross billings is now in the range of $110 million to $115 million. The company also has a long-range aim of $1.2 billion in annual revenue, and $200 million in operating profit, by 2024.
Riding Industry Growth
Hydrogen fuel cells as an alternative energy source have been making news headlines lately. Nikola (NASDAQ:NKLA) has been getting investor attention as it aims to bring its hydrogen-powered vehicles to market. Earlier in September, General Motors (NYSE:GM) and Nikola announced a partnership, whereby ““General Motors will engineer, homologate, validate and manufacture the Nikola Badger battery electric and fuel cell versions.” The Street welcomed the news.
A fuel cell generates electricity by a chemical reaction. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy, “a fuel cell uses the chemical energy of hydrogen or another fuel to cleanly and efficiently produce electricity. If hydrogen is the fuel, electricity, water, and heat are the only products.”
The European Union (EU) also believes fuel cells may offer the prospect of supplying the world with clean, sustainable electrical power. A recent study highlighted, “Hydrogen is an essential element in the energy transition and can account for 24% of final energy demand and 5.4m jobs by 2050.”
The industry is still experiencing growing pains. Yet after the recent announcement between GM and Nikola, Plug Power may also find itself a candidate for partnership or to be acquired by one of its top customers.
Wisdom of Alternative Energy in Portfolio
In the coming quarters, Plug Power‘s revenue growth is likely to continue. If you’re bullish on hydrogen as well as alternative energy and would like to have exposure to Plug Power in your holdings, then you may consider building a position between $10-$12. There are currently nine analysts whose 12-month price forecasts for PLUG stock have a median target of $13.
Well-performing stocks tend to keep on winning, and the recent strength of PLUG stock might be a good indication that within three or four years, investors who buy PLUG stock on weakness are likely to be rewarded handsomely.
Alternatively, market participants may consider buying into an exchange-traded fund that includes PLUG stock, too. Examples include the iShares Global Clean Energy ETF (NASDAQ:ICLN), the Invesco DWA Industrials Momentum ETF (NASDAQ:PRN), the ALPS Clean Energy ETF (BATS:ACES) or the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL).
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The author has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.