Once one of the alternative energy industry’s favorites, today’s recommendation hit some hard times, but it is bouncing back. The shares have gained momentum lately, but still trade at a discount.
Plug Power (PLUG)
From Crisis and Opportunity
We like to seek out that tipping point (well after the crash) where the technology catches up with the hype and yet no one is around to care. Three days ago, Plug Power (PLUG) announced that it has hit that tipping point.
Two days ago, CEO Andy March said that the company will be profitable for the first time in its 16 years in 2014. Through mid-May, the company had booked just $1 million in new orders. Orders secured in the fourth quarter alone could surpass $40 million. Next year, the company expects that Plug Power will generate $70 million in revenue at a 25 percent gross profit margin.
Plug Power makes systems that power forklifts, combining its GenDrive hydrogen fuel cells with lithium batteries. The upside is that Plug’s engines double the range of the pure electric forklift or pallet jack, reduce space needed for battery storage, and provide predictability.
The company has 23 customers including BMW, Cisco, Kroger, and Wal-Mart. These customers have over 250,000 forklift trucks, of which Plug Power has supplied 4,500. There is plenty of room to grow.
March hinted in his conference call that new major buyers will be announced over the next quarter, with buys of 700 to 1500 units apiece. These contracts will be in the range of $8 to $12 million and will have reoccurring revenue streams from five-year service contracts.
Next year, PLUG will have 100%-plus revenue growth, depending how you measure it, coming off of essentially zero. It will be EBITA positive, with $18.75 million in gross earnings. That gives you a multiple of 10.82 times EBITA with a massive growth rate, which would equate to a PEG ratio of around 0.10.
Furthermore, the industry as a whole is severely undervalued after going down for a decade. The bottom line is that we are witnessing a turning point in the hydrogen fuel cell sector. The technology is now proven.
Buy Plug Power under $2.25 with a two year price target of $10 (current price $1.98). You might want to use a two-tier entry; buy half now and half on the next dip. The catalyst for upside appreciation is a major purchase announcement from a big household-name company (IKEA?).
Christian DeHaemer, Crisis and Opportunity, www.angelpub.com, 877-303-4529, December 6, 2013