Where Will Plug Power Stock Be In 5 Years?

Elevator Pitch

I continue to assign a Buy rating to Plug Power Inc. (NASDAQ:PLUG). I touched on the 2022 outlook for PLUG in my earlier article written on January 14, 2022.

In the current article, I take a longer-term view and assess where I see Plug Power in five years’ time, on top of reviewing recent metrics and highlighting near-term catalysts. In the next five years, I expect robust revenue growth and improving profitability for PLUG. This is because I deem the company’s 2025 management guidance and 2026 consensus forecasts to be reasonable based on what I see from the company’s current progress in various business areas. As such, I maintain my Buy rating for PLUG.

PLUG Stock Key Metrics

As a start, I review the key metrics associated with PLUG’s most recent quarterly financial results.

Plug Power’s revenue expanded by +13% QoQ from $144 million in Q3 2021 to $162 million in the most recent quarter, as indicated in the company’s Q4 2021 shareholder letter. PLUG’s fourth-quarter top line came in +3% better than what Wall Street analysts were expecting.

The company generated revenue of $502 million for full-year fiscal 2021. The midpoint of its 2022 top line guidance of $900-$925 million was close to +1% higher than the sell-side’s consensus sales estimate (prior to Q4 results release) of $906 million as per S&P Capital IQ. This brings PLUG another step closer to achieving its 2025 target of delivering a $3 billion top line.

Separately, I noted in my prior January 2022 update for Plug Power that “there is a very good chance that PLUG’s revenue could surprise on the upside this year (2022), and the key factor is electrolyzer sales.” It is encouraging that electrolyzer sales contributed more than 6% of Plug Power’s Q4 2021 revenue. PLUG noted in the company’s Q4 2021 shareholder letter that it “won 16 (electrolyzer) projects in 13 countries to date”.

On the flip side, PLUG’s Q4 2021 GAAP net loss per share of -$0.33 was much wider than the market consensus’ bottom line forecast of -$0.11 per share. But there are two key factors supporting an improvement in profitability for PLUG going forward. Firstly, Plug Power should benefit from positive operating leverage as its revenue grows. Secondly, PLUG mentioned at its Q4 2021 investor call that the company’s service business will grow rapidly with the expansion of its green hydrogen network this year and this business segment has the potential to achieve a 30% gross profit margin by next year.

What Are Plug Power Catalysts To Watch For?

In the short term, there are two key catalysts to watch for.

One catalyst is new hydrogen supply contract announcements.

On April 19, 2022, Plug Power disclosed that it entered into “an agreement with Walmart Inc. (WMT) for an option to deliver up to 20 tons per day of liquid green hydrogen to power material handling lift trucks.”

There are various signs that point to more of these hydrogen supply agreements being announced in the months ahead. In its press release revealing the deal with Walmart, PLUG stressed that the WMT deal is “one of the first green hydrogen supply contracts” for the company. At the company’s fourth-quarter earnings call, Plug Power highlighted that “the sales funnel for that (hydrogen supply) is about 600 tons per day.”

As and when PLUG reveals new hydrogen supply agreements, it will give the market greater confidence that Plug Power can deliver on its 2025 goal of reaching 500 tons per day of green hydrogen production.

Another catalyst is positive news flow with regards to the shift in countries’ power policies favoring renewables or more specifically hydrogen-based fuels.

As an example, a March 23, 2022 Seeking Alpha News article cited a sell-side research report from KeyBanc which highlighted that “China unveiled a plan to raise hydrogen production to reach 100K-200K metric tons/year” in 2025 as compared to the country’s current hydrogen production rate of “33 metric tons/year.” KeyBanc named PLUG as one of the key beneficiaries of China’s new hydrogen goals, as Plug Power has the “largest green hydrogen product offering today.”

The Russia-Ukraine war is a key event which has highlighted the importance of energy security and pushed the governments in various countries to accelerate their transition from fossil fuels to renewables. As such, news flow on other countries expanding their hydrogen production will also be a key catalyst for Plug Power, apart from new hydrogen supply contract announcements.

Where Will Plug Power Stock Be In 5 Years?

Plug Power reiterated its 2025 guidance of “$3 billion in revenue” and “20% EBITDA” margin at the company’s business update conference call in late-January 2022.

Investors are confident that PLUG can meet its 2025 goals as evidenced by the Wall Street analysts’ consensus financial forecasts. The sell-side consensus FY 2025 top line and EBITDA margin for PLUG are $3,010 million and 19.2%, respectively as per S&P Capital IQ data. Sell-side analysts expect Plug Power to further increase its revenue to $4,032 million and widen its EBITDA margin to 22.3% in fiscal 2026. This translates into a FY 2022-2026 revenue CAGR of +52% and an EBITDA margin expansion of +17.9 percentage points between fiscal 2023 and FY 2026 (PLUG is still expected to be loss-making at the EBITDA level in FY 2022).

There are various metrics that provide support for Plug Power meeting its management guidance for 2025 and achieving the 2026 sell-side consensus numbers.

Firstly, PLUG noted in its Q4 2021 shareholder letter that it is “three years ahead of schedule by securing five pedestal customers by the end of 2021.” This makes it more likely that Plug Power can deliver its goal of generating $1 billion in material handling revenue by 2025, which accounts for about a third of its overall 2025 top line target of $3 billion.

Secondly, the electrolyzer business is growing fast. Plug Power has “a 155MW electrolyzer backlog for delivery in 2022” which does not include “a 250MW order from Fortescue (OTCQX:FSUMF) (OTCQX:FSUGY)” as indicated in its most recent quarterly shareholder letter. Therefore, it is reasonable to assume that PLUG is in a good position to achieve the 1GW electrolyzer backlog target for end-2022 it set at the earlier January 2022 business update conference call.

Thirdly, PLUG’s targeted green hydrogen production of 500 tons per day in 2025 appears to be achievable. Plug Power has a substantial “sales funnel” for hydrogen supply and recently announced a key contract with Walmart as I mentioned in the preceding section.

In summary, Plug Power will be a much larger company in terms of revenue in five years’ time, and it is also expected to deliver decent profitability by then thanks to greater economies of scale.

Is PLUG Stock A Buy, Sell, or Hold?

PLUG stock remains as a Buy in my view. I think Plug Power is still on track to achieve the company’s financial goals in FY 2025, based on various metrics that I have tracked and highlighted in this article.