While still down significantly from past highs, Plug Power (NASDAQ:PLUG) went on a hot run last week, with PLUG stock surging 11.7% higher on Oct. 10, and by 5.31% on Oct. 11.
Although last week was choppy, PLUG eked out a minor comeback. Still the company’s down more than 35% on the year.
Although shares in the hydrogen fuel cell company have pulled back since then, the stock remains above what it traded for before the event that led to the spike.
That event was the release of an investor presentation, ahead of the company’s “Hydrogen Symposium.”
Yet while some may see this as an encouraging sign, keep something very important in mind. This is far from the first time that this company has touted a bright future.
For years, this company has been setting high growth goals, only for actual resorts to fall short.
With this, as I’ll explain below, consider it best to err on the side of caution. There may be a similar outcome for this latest forecast.
PLUG Stock: Setting Far Fetched Goals
Take a look at the aforementioned latest investor presentation, and at first it makes sense why investors reacted positively to it.
In the presentation, management discusses how it is capitalizing on the green hydrogen boom, and why this could cause massive growth for Plug Power between now and 2030.
Expecting to generate sales of $1.2 billion this year, Plug’s forecast calls for revenue of $6 billion by 2027. That represents five fold growth in four year’s time.
By 2030, management says sales could top $20 billion, more than 16.6 times current year forecasts. With this massive jump in revenue, the company also expects gross margins to rise dramatically, to 32% in 2027, and 35% in 2030.
For reference, Plug Power’s gross margins over the trailing twelve months have come in at -26.9%.
This latest forecast suggests that a transformation is in the cards that will materially affect the company’s operating performance. In turn, boosting the PLUG stock price back higher.
However, skepticism is warranted. Why? Again, this is likely the latest instance of Plug setting far-fetched stretch goals. To see what I mean, let’s take a look at some of Plug’s forecasts from years past.
Why History Could Repeat Itself
In early 2021, PLUG stock (now trading for around $7.50 per share) was trading at prices north of $75 per share. Throughout that year, as the bubble in renewable energy stocks deflated, the stock pulled back considerably, but ambitious growth forecasts helped shares avoid a full return to pre-bubble prices.
However, as seen in 2022, as well as this year, Plug Power shares experienced a continued slide, as the company fell far short of previously issued ambitious forecasts.
For instance, in Plug’s Q4 2021 investor letter, management stated that its “2022 revenue goal” was between $900 million and $925 million.
That year, the company wound up reporting revenue of just $701.4 million. In the Q4 2022 investor letter, Plug Power guided for revenue of $1.4 billion, with gross margins coming in at 10%.
As mentioned above, the company expects revenue to come in at around $1.2 billion this year.
As for 10% gross margins? Considering that Plug reported a “gross loss” of 30% during Q2 2023, chances are 10% positive gross margins aren’t achievable this year.
Taking all of this into account, assume actual results in 2027 and 2030 fall short of the recently-touted forecasts.
The Verdict
PLUG has yet to cough back last week’s hype-derived gains, but give it time. The company next reports earnings early next month. Poor results last quarter drove a post-earnings slide.
Barring an unforeseen positive surprise that enables results to beat Wall Street’s walked-back expectations, a similar slide is likely just around the corner.
That’s not all. While the company has leaned more on debt financing more recently, rising interest rates may lead to the company needing to tap into dilutive financing sources like the sale of new shares to sustain operating losses and finance its growth.
Such dilution, if not accompanied by improved results, will likely lead to continued price declines over a longer time frame.
Bottom line: the story has not changed here. With the latest rally fueled by hype, not substance, continue to avoid PLUG stock.
PLUG stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
