Plug Power (PLUG, Financial) recently said that it is on track to record over $100 million in yearly revenue and investors took a bright view of the report as the stock was up over 10% following the announcement. Investors may be happy with the company’s short-term prospects, however I think the stock will move down in the long run.
Among the three main fuel cell stocks –Â Plug Power, Ballard Power Systems (BLDP, Financial), and Fuel Cell Energy (FCEL, Financial) –Â Plug Power's worldwide potential of $40 million in the global forklift and delivery organizations market is the prevalent, on the contrary, outside of the huge Walmart agreement, the company has so far to show that it can be a leading player. For example, in the middle of the first and second quarters its backlog dropped by 29%.
If Plug can prove it can make great inroads into its principal market, and perform so beneficially, then it may precisely miss Wall Street's estimated sales growth of 184% this year, and 67% next year. Specified its persistent losses and continuing dilution, specialists don't think Plug will turn out to be gainful until 2016 at the earliest; that would probably result in a drop in share price.
When we talk about Ballard and Fuel Cell Energy, they function in diverse markets than Plug, so maybe they make healthier fuel cell investments. Tactlessly, when it emanates to the market and growth prospective of Ballard and Fuel Cell Energy, things look even inferior for them.
The reason behind that is Ballard's primary market, remote power generation and gas-fed backup systems for the telecommunications business, is merely a $4.5 billion market, nine times less than Plug Power's potential. For the time being, Fuel Cell Energy is engrossed on the $10 billion to $12 billion heat and power generation industry.
When it approaches to sales growth, Plug Power is leading among the chief fuel cell stocks. It is also taut for the earliest when it comes to expected gains, however forthcoming projected profits barely validates the existing valuation of any of these companies.
Overvalued
Plug Power’s stock is extremely expensive as it is trading at 6.47 trailing sales. Plug Power's market cap is $414.52 million and supposing that it somehow succeeds to produce over $100 million in sales in FY2015, it will still have a P/S ratio of above 4. Paying such a huge premium for a company that is not projected to report a profit for at least the coming next six quarters doesn't make logic.
Conclusion
The company has $150 million of cash in hand and is burning through it at a fast rate. The rate at which the company has historically burned money, it will soon run of the $150 million. In addition, the company is present in a niche market and faces a lot of competition from the likes of Ballard and Fuel Cell Energy. So, I think the stock is a sell at present prices.
