By Christiana Sciaudone
Investing.com -- Investors are betting big on Plug Power (NASDAQ:PLUG) as they hunt for the next Tesla (NASDAQ:TSLA). And maybe it's finally the right time for the hydrogen fuel cell maker.
PLUG, a provider of hydrogen engines and fueling solutions, is up some 600% this year, and has a market cap of more than $5 billion. But in over two decades of being in business, it has yet to post a profit. That should change, at least in 2024, when it is forecasting the tides will turn. And on the plus side, unlike electric truck maker Nikola, Plug actually has a product that runs on its own and is already in the hands of customers like Amazon.com (NASDAQ:AMZN).
"This isn't a company talking about doing this at a future date," said Chief Executive Officer Andrew Marsh in a phone interview. "We've done it, continue to do it, and that is what differentiates Plug Power."
Plug forecasts revenue of $1.2 billion, operating income of $200 million and adjusted earnings before interest, taxes, depreciation and amortization of $250 million in four years, guidance that was recently boosted after it acquired United Hydrogen Group Inc. and Giner ELX, with a goal that more than 50% of the hydrogen it uses be green by 2024.
"There is a lot of hype around hydrogen right now because of Tesla and electric vehicles, and because earlier this year Nikola came out with plans for a hydrogen truck," said Hillary Cacanando senior vice president of Energy Investment Research at Odeon Capital Group. "Plug's stock rose along with that excitement, however I think the excitement around hydrogen is real this time."
Plug was among those stocks that 20 years ago flew sky-high amid the dotcom boom. It traded as high as $1,174.38 in 2000 only to come plummeting down for the next two decades. Unlike Nikola, it has a solid back story, Cacanando said.
"Nikola has no revenue, it's really a concept story," Cacanando said in a phone interview. "They have strong customers and strong relationships with Walmart (NYSE:WMT), Amazon and Home Depot (NYSE:HD)."
The concern is in the margins.
Forklifts represent the majority of revenue for Plug today, and that will continue to be the case four years from now, with sales estimated at $750 million for the material handling business at that time, more than doubling from this year, Marsh said.
"We need to add two other big, large customers to get there," said Marsh, who is expecting to announce one of those pedestal clients before the end of 2020, at which point the stock will likely spike, like it does every time Plug puts out a press release.
Another $200 million in revenue should come from electrolyzers that store power -- like solar and wind -- and $250 million from large-scale back-up power. Plug is working on a pilot program with a leading data center company for large-scale stationary back-up power for 2021, Marsh said. Again, that press release will likely lead to a jump in shares.
What about vehicles? While Marsh has no doubt electrification will one day replace the internal combustion engine, it will depend on the cost of hydrogen and the available infrastructure to charge the fuel cells. Marsh points to class A trucks -- big rigs -- and the benefit of hydrogen fuel cells over batteries. Not only are batteries heavier, they also require lengthy charging times, where hydrogen fuel cells require no more than three days a year of charging.
Plug built fueling stations for Walmart and Amazon to charge their forklifts. When it comes to states and countries, though, it's clearly a massive undertaking to get fueling stations dotted across the terrain.
"Consumers are pushing for cleaner solutions and that drives companies," Marsh said. "Companies are looking to be cleaner around the world, and that overlapped with policies" should result in a movement toward building the necessary infrastructure.
The European Union has mandates to move to totally clean energy by 2050, and California's set to go carbon-free by 2045.
Then there's the high cost. While hydrogen can be produced from renewable energy, it's still expensive.
"The cost for hydrogen is expected to come down dramatically over the next several years, and if that's the case, there's a huge opportunity," Canacando said. "The risk is, is the cost really going to come down?"
The other uncertainty is shareholder wrath. Some have bristled at being diluted as the company issued new equity over the years to make money to expand while profit remained elusive. But Marsh says those days may be over, for now.
"We have half a billion dollars on the balance sheet," Marsh said. "We have no plans to raise capital any time soon."
Investors seem to be drawn to the stock's tech-like opportunities. "Investors are willing to accept that for growth potential, particularly in this market, with growth momentum stocks doing well," Cacanando said.
Apparently so: the stock has 10 buys, one hold and no sells, and hedge fund D.E.Shaw reported a 5% passive stake in Plug Power, or 20.3 million shares, as of Aug. 24.
Plug's 2024 guidance may yet again be updated, as new acquisitions aren't out of the question, Marsh said.
"I'm always thinking about opportunities to leverage our technology," Marsh said. "I would not be surprised if we find a large or small player that would make sense to partner with or maybe form JVs or purchase."