Crystal balls are said to be useful items, but they are very hard for investors to come by. For better or worse, investors in Plug Power(NASDAQ: PLUG) stock have something very close to a crystal ball: hard numbers, laid out by management and by Wall Street analysts, telling us where Plug Power stock should be in five years.
Are you planning to invest in America’s best-known pioneer in hydrogen fuel cells and intending to own the stock for the long term rather than simply trade in and out? If so, it’s probably a good idea to at least consider these numbers before making your decision.
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Plug Power gave its Q3 earnings just a couple of weeks ago, and it was kind of a disaster. Not only did Plug report a big net loss of $211.2 million. (That wasn’t surprising. Plug has only ever reported a quarterly profit once in its 27-year-history.) Its sales also declined 13% year over year to $173.7 million.
Although Plug reported strong growth in sales of hydrogen fuel (up 54%), sales of equipment (i.e., fuel cells) tumbled 26%. Because demand for hydrogen fuel relies on customers first buying fuel cells, the steep decline in demand for fuel cells bodes poorly for future growth in both these businesses.
With just one more quarter to go before 2024 is over, Plug forecasts sales will end up between $700 million and $800 million this year. Wall Street analysts agree — with the low end of that estimate, at least. Consensus forecasts see Plug booking $715 million in revenue this year, down 20% from 2023.
So, 2024 isn’t looking great for Plug Power. But what about the future?
At its “2024 Plug Symposium” in New York last week, Plug laid out its plans for the next five or six years for investors, forecasting a return to revenue growth in the 2025 to 2030 period. Indeed, as early as next year, growth should resume as Plug raises its revenue to the $850 million to $950 million level. Profits will remain negative, but management expects that to change over time.
Over the next five years, Plug plans to grow sales by 30% per year on average, aiming to hit $3.75 billion in annual sales by 2030. Plug anticipates both halves of its business, both hydrogen fuel production and fuel cell sales, achieving this growth rate. With greater volume, the company hopes to reap efficiencies of scale and turn its gross profit margin first positive, then grow it to 30%.
Wall Street analysts are generally on board with these projections. According to the latest estimates from S&P Global Market Intelligence, analysts forecast that Plug Power will approach $1 billion in revenue next year and pass $3 billion (actually, $3.1 billion) in 2030.
Moreover, they forecast Plug to achieve positive net income in 2029 ($0.07 per share). Granted, that means that anyone buying Plug stock today is paying 27 times earnings now for profits that won’t be earned for another five or six years — which seems a bit pricey.
Then again, if the analysts are right, once Plug finally does turn profitable, it should grow its profits rapidly by as much as 12x over the next four years.
Still, Plug has been wrong on its prognostications before — and so has Wall Street.
For example, as far back as 2013, Plug Power was telling investors it would earn breakeven earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2014. Ten years later, Plug’s EBITDA margin is still negative 150%. Similarly, in 2017, Wall Street analysts forecast positive net income for Plug by 2019. Plug didn’t achieve that in 2019, however.
Nor did Plug turn a profit in 2020, 2021, 2022, or 2023. (And 2024’s not looking so great, either).
All of which is to say, when Wall Street tells you that Plug Power will earn a profit in 2029 — a decade after it said Plug would earn a profit in 2019, and it didn’t — that prediction has a kind of “the boy who cried wolf” feel to it.
If you want to buy Plug stock because you believe fuel cells are good for the environment and aren’t too concerned about making any money on your investment, then by all means, go ahead and buy it. Just know what you’re getting into before you do, and… caveat investor.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
