What happened
Plug Power (PLUG +1.83%) shares went on a wild ride Wednesday, opening the trading session down by 6.9% before bouncing back quickly and gaining as much as 3.3% in morning trading. As of 1:51 p.m. EST, the stock was up by about 0.9%.
Earnings, an acquisition, an analyst turning cautious -- there was so much happening that the market had a tough time figuring out how to react to the mix of news flowing in.
So what
The market's expectations for Plug Power ran high ahead of its third-quarter earnings report. And the company did report its strongest quarter ever in terms of revenue -- $143.9 million, up 34% year over year. Plug Power shipped 4,559 GenDrive fuel-cell units and 16 hydrogen systems in Q3 versus 3,709 GenDrive units and 13 hydrogen systems in Q3 2020.
Plug Power's losses, however, widened to $0.19 per share -- worse than analysts' consensus expectation for losses of $0.09 per share. The company blamed the weak bottom-line result on higher fuel, service, and product costs.
Image source: Getty Images.
That got investors wondering how Plug Power expects to achieve its recently outlined goal of gross margins greater than 30% by 2025. The company highlighted how it plans to boost margins by reducing its per-unit service costs by 30% over the next year and by 45% by the end of 2023. With its green hydrogen plant also expected to start operating by 2022, Plug Power sees its fuels business margin improving as well, and breaking even by 2023.
So while the market initially reacted negatively to Plug Power's earnings miss, it soon began to more heavily factor the company's outlook and acquisitions into the picture, which led traders to bid the stock higher.
Plug Power raised its revenue guidance for 2022 to a range of $900 million to $925 million. As recently as a month ago, Plug Power was guiding for $825 million to $850 million in revenue for 2022. Although management sees end markets gaining traction, there was a bigger reason behind its guidance upgrade: On Wednesday morning, Plug Power announced it will acquire Frames, which has a backlog of roughly 100 million euros, and will support Plug Power's goal of reaching 3 gigawatts of electrolyzer capacity by 2025.
Now what
It was encouraging to see Plug Power reiterate its 2025 revenue projection of $3 billion. But with the company's margins expected to be under pressure for several quarters, Morgan Stanley sees "risk to the upside from here" for Plug Power stock and is reassessing its current price target of $43 a share.
Put another way, Plug Power may be growing revenues, but profitability remains elusive. But with management projecting 80% revenue growth in 2022, investors may not pay much heed to profitability just now, and instead keep bidding this growth stock -- which is already up by almost 79% in just six months -- even higher.
