Plug Power Stock Analysis (NASDAQ: PLUG)
First Published date: 12. October, 2022Last Updated: 23. November, 2022Fact-checked by Adrian Müller
If you’re looking for an interesting stock to invest in, look no further than Plug Power (NASDAQ: PLUG). This company is at the forefront of the “green energy” revolution, and its products are in high demand.
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In this article, we will take a closer look at Plug Power’s business model and competitive advantages. We will also analyze the risks associated with investing in this company, and discuss why investors are so bullish on its future.
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Company Profile
Plug Power (NASDAQ: PLUG) is a fuel cell company that was founded in 1997. The company’s mission is to provide clean, reliable energy solutions that improve the way people live and work. Plug Power’s products are used in a variety of applications, including material handling, backup power, and portable power.
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Plug Power has a market cap of just over $12 billion and is one of the leading fuel cell companies in the world. For those that are interested in this industry, Plug Power is definitely a company worth watching and for those that are not aware of the shift to green energy, it might be time to start paying attention.
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The fuel cell industry is expected to grow significantly in the coming years as the world looks to find cleaner and more efficient ways to power our homes, businesses, and vehicles. Fuel cells offer several advantages over traditional combustion engines, including lower emissions, higher efficiency, and longer lifespans. Plug Power is well-positioned to capitalize on this growth.
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The company has three main product lines: fuel cells, batteries, and hydrogen generation systems. Fuel cells are the core of Plug Power’s business. These devices convert chemical energy into electrical energy, with water as the only by-product.
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Batteries are used in conjunction with fuel cells to provide power during peak demand periods or when fuel cells are not operating at full capacity. Hydrogen generation systems are used to produce hydrogen gas, which is then used to power fuel cells.
As a turnkey solution, Plug Power provides everything customers need to run their operations on fuel cells, including the fuel cells themselves, batteries, hydrogen generation systems, and service and support. This helps ensure the adoption of their technology and keeps customers coming back.
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Rather than providing a siloed approach of only selling fuel cells, Plug Power’s comprehensive solution has helped it become the leading provider of integrated hydrogen and fuel cell solutions.
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Plug Power has a diversified customer base that includes some of the world’s largest companies. Its customers include Walmart, Amazon, NASA, FedEx, and more. By working with such a wide range of customers, Plug Power has been able to gain a deep understanding of the fuel cell market.
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Plugging into the deep pockets of these major corporations also serves as a powerful form of social proof while also providing the green company with substantial revenues.
Key Competitors
Hydrogen is often laughed at by the EV community. However, Plug Power has proven that its products work wonders for smaller vehicles such as forklifts and smaller-scale trucks. By focusing on this industry rather than the broader car industry, Plug Power has been able to stay ahead of its much larger competitors.
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Plug power’s fuel cell engines power more than 40,000 forklifts across North America. However, with such a growing need for green energy, Plug Power will have to face some stiff competition in the future.
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The two main competitors in the fuel cell market are Ballard Power Systems (NASDAQ: BLDP) and FuelCell Energy (NASDAQ: FCEL). Both of these companies are much larger than Plug Power and have been in the fuel cell business for much longer.
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Ballard Power Systems is a Canadian company that was founded in 1979. The company has a market cap of just over $2 billion, and its fuel cells are used in a variety of applications, including transportation, stationary power, and portable power. This company has focused on buses, trucks, trains, and ships. Although Ballard Power doesn’t compete directly in terms of product line, they may decide to step into the forklift market in the future.
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Although Ballard Power Systems does not have the market cap to match Plug Power’s dominance, they have been known for its strategic acquisitions.
For example, back in 2021, Ballard Power Systems acquired Arcola Energy. This company is a systems engineering business in the United Kingdom. They specialize in developing hydrogen fuel cell-powered vehicles and systems. This shows that Ballard Power is willing to make acquisitions to stay ahead of the competition.
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By focusing on the infrastructure of public transportation and alternative modes of travel other than cars, Ballard may have an edge over Plug Power in the future. They are not limited to logistics but rather serve society by providing sustainable solutions for more common forms of mobility for everyday people.
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FuelCell Energy is an American company that was founded in 1969. The company has a market cap of $1.39 billion. FuelCell Energy has focused on the utility market and has installed over 400 megawatts of power generation capacity worldwide.
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This broader approach to a market that is used daily by everyday consumers may help FuelCell Energy take market share away from Plug Power in the future. This is because although Plug Power helps major corporations, FuelCell Energy’s products are used by everyone.
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As nations enforce a stronger ESG narrative, FuelCell Energy can capitalize on other utility companies’ failures on this front.
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Creating the infrastructure to enter into this recurring revenue-based business model is critical for FuelCell Energy. The company has made large investments in this area, and it’s starting to pay off. It would be difficult for Plug Power to make a similar investment and catch up to FuelCell Energy.
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As a designer, manufacturer, and operator of direct fuel cell power plants, FuelCell Energy is the only company that offers an integrated solution. This gives FuelCell Energy a competitive advantage as it can offer a one-stop-shop solution, which is something that Plug Power cannot do.
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Powering communities is no easy task and it may be best to let FuelCell Energy continue to do what it does best while Plug Power focuses on the logistics industry.
Should Investors Be Worried About These Competitors?
Investors must be aware of these two larger competitors when considering an investment in Plug Power. Although Plug Power is the current market leader, it may not be able to stay ahead of its competitors forever. Plug Power is much larger than both these companies in terms of market cap, however, so it may be able to use its size as an advantage in the future.
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Plug Power’s business model is based on recurring revenue, and this is something that FuelCell Energy is also starting to do well. As mentioned earlier, FuelCell Energy has made large investments in creating the infrastructure for a recurring revenue-based business model. This could be a threat to Plug Power in the future as FuelCell Energy starts to take the market share away.
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In terms of key risk factors, each of these companies shares some common risks. These include execution risk, technology risk, and competition. However, each company also has some unique risk factors.
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For Plug Power, one key risk factor is its dependence on a small number of customers. This could be a problem if one of these customers decides to stop using Plug Power’s products. Each customer brings in tremendous amounts of revenue and even if just a few customers leave, it could have a significant impact on Plug Power’s bottom line.
FuelCell Energy also has some unique risk factors. One key risk factor is its ability to generate enough cash flow to support its operations. This is a problem that many small companies face, and it will be interesting to see how FuelCell Energy deals with this in the future.
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Another key risk factor for FuelCell Energy is its dependence on government subsidies. These subsidies have helped the company in the past, but they may not be available in the future. This could hurt FuelCell Energy’s bottom line.
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Ballard Power Systems faces the risk of EV manufacturers entering their market. For example, Tesla has revealed a transport truck that is expected to be more efficient than trains. This could put a dent in Ballard’s market share.
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Overall, investors should be aware of the broader industry and what each company brings to the table. However, it’s entirely possible that Plug Power can thrive alongside its competitors. It does not have to be a winner-takes-all market.
Stock Analysis
After reaching an all-time high of just under $67 back in January of 2021, the stock has since fallen to around $22. This stock (NASDAQ: PLUG) is a volatile one and investors with a low-risk tolerance should be aware of this before investing.
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Despite its evident success with major corporations as customers, conservative investors may want to wait until the stock becomes more stable before investing. However, for investors with higher risk tolerance, this could be seen as an opportunity to buy the stock at a discount. Before you “buy the dip” it may be advantageous to keep reading as we will also add insights from a stock fundamentals perspective.
Stock Fundamentals
Although the company’s balance sheet shows that the firm has greater assets than liabilities, the company is not profitable. In June of 2022, the company had 5.73 billion in assets and 1.4 billion in liabilities. This can be concerning as the liabilities have increased compared to previous quarters.
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This can also be an indication that the company is reinvesting its resources into future growth, but the firm must start to generate positive cash flow to cover these expenses. For those that aren’t interested in growth stocks, this may not be the company for you. If the company is not careful, it may find itself in excessive debt.
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However, there could be a strategic reason for its poor cash flows. By reinvesting into the ESG movement and using capital to take a foothold in the market, they may be able to increase their profits in the long run. This is a speculative move, but one that could pay off if the market for green energy continues to grow.
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The company had a P/E ratio of -34.4 at the end of 2021. A negative P/E ratio is an indicator that the company is losing money. At such a high loss, it is evident that the company’s stock price does not reflect its current earnings. Many investors are speculating on the possibility that the company will become profitable in the future.
The major partnerships with corporations such as Amazon, Walmart, NASA, Home Depot, etc. are helpful indicators of future potential, but from a purely stock analyst’s perspective, the company is currently not a good buy if you are not confident in their future success.
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These stock fundamentals aren’t great, however, many growth-oriented companies that later found tremendous success also had poor stock fundamentals in their early days.
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For example, many tech firms and innovative companies were stocks that value investors would stay away from but growth investors would be interested in. It’s important to remember that not all companies need to have strong stock fundamentals to be good investments, but it is something to be aware of.
Competitive Advantages
We briefly mentioned some of Plug Power’s competitive advantages, but let’s dive deeper into some of the aspects that make the corporation such a powerhouse in the fuel-cell industry.
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First and foremost, Plug Power (NASDAQ: PLUG) has some of the biggest names in the retail and technological world as its customers. This gives Plug Power a competitive advantage because it has already established itself as a reliable supplier of fuel cells to these major corporations.
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Another one of Plug Power’s key competitive advantages is its supply chain. The company has developed strong relationships with many suppliers which gives it an edge over its competitors who may not have access to the same resources.
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Not only does Plug Power help with major corporations’ logistics through fuel cell-powered vehicles, but their own supply chain is very efficient. This helps ensure the fulfillment of customer orders and creates repeat business.
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Plug Power’s competitive advantage also comes from its intellectual property. The company has recently filed 23 patents on the topics of fuel cells, hydrogen technologies, and electrochemistry.
By holding these patents, Plug Power can control its technology and prevent competitors from using its fuel-cell designs. This is a major advantage because it allows Plug Power to maintain its dominance in the fuel-cell market.
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As a turnkey solution, Plug Power can provide its customers with a complete fuel-cell system including hydrogen tanks, fueling infrastructure, and on-site maintenance. This is a significant advantage because it allows Plug Power to control the entire customer experience.
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Lastly, Plug Power has a very experienced management team that knows how to scale a business quickly. In such a rapidly growing industry, this is an invaluable asset that will help the company continue to grow at an accelerated pace.
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By being able to navigate an ever-changing landscape, Plug Power’s management team has established a competitive advantage that will be hard for other companies to replicate.
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From its partnerships to its supply chain to its intellectual property, Plug Power has many competitive advantages that have allowed it to become a leader in the fuel-cell industry.
Demand For Products
Support for their sustainable efforts from both nation-states and consumers is also a positive benefit that Plug Power has over its competitors.
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As we’ve seen with the company’s partnerships, many governments and organizations are supportive of Plug Power’s mission to create a cleaner world. This provides a stable demand for their products and helps to create a positive reputation for the company.
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Not only does Plug Power have the support of governments and organizations, but it also has the support of consumers. An increasing number of people are becoming more conscious of the need to reduce their carbon footprint and are therefore more likely to purchase products from companies that are sustainable. This provides a growing demand for Plug Power’s products and is a major competitive advantage.
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Corporations are becoming increasingly aware of their carbon footprint and investing in products such as the ones Plug Power provides can help them to reduce their environmental impact. This is a major trend that is only going to grow in the coming years, which provides Plug Power with a stable and growing demand for its products.
Risk Factors
Even with all of these competitive advantages, there are still some risks that investors should be aware of. By looking at both sides of the equation, investors can make a more informed decision about whether or not to invest in Plug Power.
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The first risk is that Plug Power is a relatively small company and it relies heavily on government subsidies to support its business. If the government were to change its policies or stop subsidizing the fuel-cell industry, it would have a major impact on Plug Power’s business.
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Another risk is that the fuel-cell industry is still in its early stages of development and it’s possible that another technology could come along and replace fuel cells. This would hurt Plug Power’s business.
Technology advances fast and some experts have indicated that we are now living in an exponential age. Thus, the patents that Plug Power acquires could become a relic of the past before you know it. Of course, this is speculation but as investors, we need to be aware of the possibility.
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The adoption of hydrogen technology is another risk factor. If society does not adopt hydrogen fuel cells, it will be difficult for fuel-cell technology to proliferate.
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Even if society is trending towards this path but does not do so promptly enough, Plug Power could find itself in a difficult position. With a poor positive cash flow and rising debt, the company might not be able to sustain itself until mass adoption occurs.
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Lastly, even though Plug Power has established relationships with some major corporations, it still relies heavily on a few key customers for its revenue. If one of these customers were to switch to another supplier, it could have a major impact on Plug Power’s business.
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Despite these risks, many analysts believe that Plug Power is a strong company with a bright future. It has many competitive advantages and is well-positioned to capitalize on the growing demand for fuel-cell products.
The Bottom Line (Final Thoughts)
Plug Power is a leading fuel-cell company that has established itself as a reliable supplier of green energy solutions. The company has a strong competitive advantage in the form of its relationships with major corporations, its government support, and its growing consumer base. Despite some risks, Plug Power has the potential to be a good long-term investment.
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This type of technology is often outside the field of competence for most people. The common investing advice is to only invest in what you know. If your head is spinning after reading this article, that’s probably a good indication that Plug Power is not a company you should be investing in.
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However, if you have an interest in the environment and want to invest in a company that is positioned to capitalize on the growing demand for green energy, then Plug Power might be worth considering.
This company also has a strong presence in Europe which is another key consideration as an investor because this region is quickly adopting more environmentally friendly practices. This targeted approach will help Plug Power to continue its growth in the future.
As a B2B enterprise serving some of the largest companies in the world, Plug Power has a lot of potential. If the company can continue to keep these customers happy while consistently onboarding new ones, it will be in a good position to grow its top line.
To sum it up, Plug Power (NASDAQ: PLUG) is a risky but potentially rewarding investment. You should do your own research on both the individual company as well as the broader problems they are attempting to solve. By approaching it with an understanding of the risks involved, you can make a more informed decision about whether or not to invest in Plug Power.
Do you agree with this analysis? Let us know in the comments below!
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