Plug Stock Analysis

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Plug Power Inc. (PLUG) released its most recent earnings report Monday morning, where the company continues to be unprofitable. In fact, losses increased to $11.1 million, more than what they were a year ago, due to increasing costs. This is especially true for total administrative costs, which doubled during the first quarter which ended March 31st compared to the same quarter in the year earlier period. While these fiscal problems are concerning, important trends make this stock bullish in the long-term.

Plug Stock Analysis

Revenue Continues To Increase

During the past year, revenues for Plug Power almost tripled, as can be seen in the image below. This kind of growth is key for the company, as its stock price is reliant on the promise of future revenue growth until it becomes profitable. That trend continued during the most recent quarter, when revenue increased 69% compared to the first quarter of 2014, up to $9.4 million.

Rev Groth

Figure 1. Source: YCharts. Revenue Growth In 2014.

Also worthy of noting is that this trend is likely to continue during the next quarter and beyond. The company announced that 419 GenDrive Units were shipped during the quarter, and construction had been made on seven hydrogen fueling stations. These sales will show up in the second quarter earnings report, and represent a dramatic increase compared to the recently ended quarter. During the first quarter, revenues were driven by 265 GenDrive units and one hydrogen fueling station. The increase in GenDrive sales alone is an increase of 58%.

Furthermore, company executives believe that production and sales will ramp up in the second half of the year. Plug Power still believes it will have $100 million in total sales during the fiscal year, with 35% to 40% being completed by the end of the second quarter. With the first quarter representing around 10% of this total, that would mean second quarter revenue would make up 25% of this total, amounting to close to $25 million.

I believe it might not reach that level by the next quarter, but it should surpass that level during the two quarters in the second half of the year thanks to partnerships with large companies, including Wal-Mart and Kroger. Large partnerships with companies such as these are vital for the company’s success as it continues to work on making its hydrogen solutions affordable for small users like retail stores. Currently, these large partnerships continue to expand, with 42% of shipments that will be recognized next quarter going to a single customer.

Improved Gross Margins

While the company’s net income fell during the previous quarter, it was as a result of increased sales, as gross margin actually increased. During the first quarter of 2014, gross margin was -41%. This figure improved to -22% during the most recent quarter. During the earnings call, CEO Andy March claimed that the GenDrive business would achieve gross margins of 30% by the end of the year.

The repeat customer base provided by companies like Wal-Mart and Kroger, as well as the addition of Home Depot, will be important as the company follows the same path to get its GenFuel business to achieve similar margins. Doing so would allow the company to build its goal of a $400 to $500 million material handling business in the next four to five years.


Figure 2. Source: FuelCellToday

Improving these gross margins will also be key before the ITC tax credits expire in 2017. Marsh addressed these concerns during the earnings report, saying he was unsure about whether this tax credit would be extended past its current expiration date. In a note that should be encouraging to investors, however, he did state his goal all along was to make the company financially viable without the tax credit, whether it continues to be apply or not, and that it is not needed for the long-term success of the company..