PLUG Stock Analysis: Future Charged With Potential

Linda Luo is a Financial Analyst at I Know First.

PLUG Stock Analysis: Future Charged With Potential


  • Q1 Financial Results
  • Partnership with Amazon Could Fuel Long Term Growth
  • Global Sustainability Trend Opens Overseas Opportunities: China & Europe
  • I Know First Algorithm Bullish Forecast For PLUG

PLUG Stock AnalysisPlug Power Inc. (NASDAQ:PLUG) is a pioneer in taking hydrogen and fuel cell technology from concept to commercialization. Its operations focus on designing and manufacturing commercially viable hydrogen fuel cell systems to power equipment and vehicles. A hydrogen fuel cell combines hydrogen and oxygen and converts energy from the chemical reaction into usable electric power. The company is leading implementation of its alternative energy solutions to replace lead acid batteries in machinery powered by electricity.

Q1 Financial Results

PLUG Stock Analysis

Plug Power has been a controversial stock as the company has not achieve profitability in the last five years. The company reported GAAP revenue of $15.2 million for the first quarter of 2017. It declined from $15.3 million in Q1 2016. GAAP gross margins also declined from $0.2 million in the first quarter of 2016 to negative $4.5million for this quarter. Subsequently, investor confidence nosedived upon Plug Power’s Q1 earnings report release. However, from a long term perspective, the company is likely to turn around its fortunes. Recent developments and opportunities can improve its financials.

In a letter to shareholders, CEO Andrew Marsh characterized their Q1 performance as a foundation for achieving their goals for 2017 and overall long term vision. Despite overall revenue decline in Q1, Plug Power’s recurring revenue streams saw an increase of 30% year over year. However, a reduction of system deployments compared to Q1 2016 detracted from the recurring revenue growth. Additionally, the timing of planned 2017 deployments is concentrated in the latter part of the year. Thus, this created a tough comparison for Plug Power this quarter. The company plans to accelerate its activity in the second quarter. The rollout of system deployments will mostly occur in the second half of 2017. The company anticipates its operations in the second half of 2017 to accrue about 65% of expected revenue.

Furthermore, Plug Power attributed the decline in gross margins to a revenue mix less weighted on product sales and more heavily weighted toward recurring streams that have lower margin profiles currently since they are relatively new. Another concern for investors is Plug Power’s cash use in the first quarter, which has scaled to $23.9 million. The company stated that it used cash for working capital to begin work in Q1 on projects that will be delivered in the second and third quarters. Given its planned cash conversion cycle and focus on improving its cost structure, Plug Power anticipates better cash performance in the coming quarters.

Amazon’s Investment: Fuel For Long Term Growth

PLUG Stock Analysis

Plug Power’s strategic agreement with Amazon was a major milestone for the company so far in 2017. In April, Plug Power inked a multi-year contract with the e-commerce giant that included terms for an equity investment and supply agreement. PLUG shares spiked over 70% after announcement of the deal.  Plug Power agreed to supply fuel cells and its GenKey technology to power forklifts at Amazon warehouses and gave Amazon warrants to buy 55.3 million shares for prices under $1.19/share. After the share purchase, Amazon will hold a 23% stake in Plug Power. The company expects the deal to bring in $70 million of revenue for 2017, doubling their annual revenue. Over the next few years, the company anticipates the deal to add $600 million to Plug Power’s revenue stream and drive top-line growth. This transaction can serve as a strong base for Plug Power to reach profitability.

Not only did Amazon sign on as a new customer, it furthered its support of Plug Power with a significant equity purchase. Amazon’s backing serves a strong validation of Plug Power’s business and the commercial viability of its fuel cell energy solutions. This may inspire other corporations to follow Amazon’s footsteps in supporting and adopting renewable energy solutions.

Global Sustainability Trend Opens Overseas Opportunities

PLUG Stock AnalysisIn the US, Plug Power’s GenDrive fuel cell has been fairly successful. For instance, it boasts a customer base that consist of companies by the likes of Walmart, Home Depot, and BMW. Companies outside of the US are also starting to place increasing value on environmental sustainability and responsibility. In particular, this trend opens up new markets for Plug Power to tap and expand its market share. Plug Power can leverage its success with its GenDrive technology and other products to break into overseas markets.

Plug Power gained a major foothold in Europe when it signed Carrefour, the second largest retailer in the world, as a customer in July 2016. This quarter, the company has received a follow on order from Carrefour for 80 GenDrive fuel cell units as part of the second phase of their initial rollout of the technology. Plug Power’s partnership with Carrefour holds promising potential to expand the company’s presence in Europe as Carrefour has over distribution centers on the continent. Moreover, Plug Power has also gained a new European client in Norway, their first in that country.

Outside of Europe, the Asian market also holds opportunities for Plug Power’s expansion. In particular, China’s government is eyeing hydrogen fuel cell technology to facilitate its goal of reducing emissions in cities and large urban areas. In November 2016, the central government announced its plans to construct an infrastructure of hydrogen fueling stations to support approximately 50,000 zero-emissions fuel-cell cars by 2025 and eventually 1 million by 2030.  This is a new development since the last bullish I Know First article on Plug Power from October 9, 2016 addressed the company’s overseas opportunities. 

China’s latent demand would make it the world’s largest hydrogen market. China’s market had bypassed the US in car sales in 2009 and has a sales volume projection of 20 million passenger cars for 2017. Plug Power has already made its first step into tapping this market through securing a cooperative agreement with Furui, a Chinese natural gas company to build fuel cell systems and fueling stations in 2016. The market of hydrogen fuel cells and hydrogen powered fuel cell electric vehicles is growing rapidly with the support of the Chinese government and this can be a significant growth driver for Plug Power. With a larger base of customers, Plug Power can scale volume while drive down costs by spreading fixed costs among a bigger base of clients.


Overall, Plug Power is focusing on maximizing its long term growth. With the backing of world-renowned clients such as Amazon and Carrefour, the company is well positioned to leverage its success with its current customers to enter new markets overseas and continue expansion in the material handling industry.

I Know First Algorithm Bullish Forecast For PLUG

I Know First currently maintains a bullish stance on PLUG with signal strength 31.30 and predictability 0.44 for the 1-year forecast. The predictability increases in the long term, indicating that Plug Power is a strong investment in the long term.

PLUG Stock Analysis

Past I Know First Forecast Successes With PLUG:

In such as the one dated on October 9, 2016, the algorithm accurately forecast a signal for Plug Power. Since the forecast was issued , the stock rose steadily by 26.35%, beating the S&P 500 return of 13.31%.  The market premium calculates to an astounding 13.04%.

This bullish forecast was sent to I Know First subscribers on October 9, 2016.

PLUG Stock Analysis

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go. (positive = to go up = Long, negative = to drop = Short position). The signal strength relates to the magnitude of the expected return. We use the signal strength for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day. It can be simplified and explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. It allows the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.