Where Will Plug Power Stock Be in 3 Years?

Plug Power (PLUG -2.58%), a developer of hydrogen fuel cell systems, was one of the biggest boom and bust stories of the dot-com bubble more than two decades ago. The company went public at a reverse split-adjusted price of $150 per share on Oct. 29, 1999, and its stock soared nearly tenfold to its record high of $1,498 on Mar. 10, 2000.

But today, Plug's stock trades at about $2 a share. A $10,000 investment in its IPO would only be worth $160 today. It briefly surged to the mid-60s during the buying frenzy in meme stocks in early 2021, but those gains evaporated for three reasons.

Image source: Getty Images.

First, Plug Power's growth slowed down as it racked up steep losses. Second, the company failed to file its annual report for 2020 on time, and it subsequently admitted that it would need to restate all of its financials for 2018 and 2019. At the same time, it was hit by a series of class action lawsuits alleging it repeatedly misled its investors. Lastly, Plug Power simply wasn't generating enough revenue to support its skyrocketing valuations.

Plug Power still faces a murky future, but its stock looks cheap at less than two times this year's sales. Some 27% of its shares were still being shorted as of April 15, and its insiders actually bought more shares than they sold over the past three months. So could its beaten-down stock stage a major comeback over the next three years?

What happened over the past three years?

Plug Power's GenDrive is a hydrogen fuel cell system for electric forklifts, automated guided vehicles, and ground support equipment. Its GenSure platform is a stationary hydrogen grid solution for telecom, data center, transportation, and utility customers. It also sells electrolyzer systems for building modular hydrogen generators, liquefaction systems for producing liquid hydrogen, pre-produced liquid hydrogen, and cryogenic equipment for storing and transporting liquid hydrogen.

Plug Power has deployed over 69,000 fuel cell systems for forklifts and over 250 fueling stations so far. Its largest customers include Walmart (WMT 1.25%), Home Depot (HD -0.47%), and Amazon (AMZN 0.03%), which have all been testing out hydrogen-powered forklifts in their warehouses and fulfillment centers.

Plug Power's revenue rose 27% to $891 million in 2023, but that represented a deceleration from its 40% growth in 2022. Meanwhile, its operating margins shriveled as its net losses widened at an alarming rate.

Data source: Plug Power.

During its fourth-quarter conference call in March, CFO Paul Middleton blamed that slowdown on the "chaos in the hydrogen fuel market," which caused an "unprecedented number of industry fuel facility shutdowns" throughout the year. Middleton also admitted that it was taking "longer than planned" for Plug to scale up its own hydrogen plants.

That's a grim situation for a company that ended 2023 with $635 million in current liabilities and just $135 million in cash and equivalents. It will likely try to raise more cash through secondary offerings, but it's already nearly tripled its share count over the past five years with its previous offerings and stock-based compensation.

What could happen over the next three years?

Plug Power believes it can gradually narrow its losses by raising its prices, shrinking its workforce, consolidating its facilities, and streamlining its business processes. It expects those efforts will throttle its near-term revenue growth, but it also believes those improvements will boost its cash flow to positive levels this year. Here's what analysts believe will happen to Plug's business over the next three years.

Analysts' consensus estimates. Data source: Marketscreener.

We should be skeptical of those rosy estimates, especially considering how many times Plug Power disappointed its investors over the past two decades. However, the company is still one of the earliest movers in the U.S. hydrogen fuel cell market, which Precedence Research expects to grow at a compound annual growth rate (CAGR) of 60% from 2023 to 2032.

If Plug matches analysts' sales expectations in 2026 and still trades at about two times that number, its stock could easily double or triple from its current levels. If it successfully scales up its business and narrows its losses at a faster rate, it could command a higher valuation and generate even bigger multibagger gains over the next three years.

I'm not saying that will happen, but Plug seems to have more upside potential than downside potential at these prices. Nevertheless, investors should see if it successfully narrows its losses over the next few quarters before nibbling on its stock.