Hydrogen solution provider Plug Power Inc. (PLUG - Get Rating) recently announced a partnership with Lhyfe to jointly pursue and develop green hydrogen generation plants throughout Europe. The Latham, New York, company also executed a definitive agreement to acquire Applied Cryo Technologies, Inc., which should help it expand the green hydrogen ecosystem. Over the past month, the stock has gained 65.4% in price to close yesterday’s trading session at $40.23.

However, the stock has lost 40.5% over the past nine months and is currently trading 46.7% below its 52-week high of $75.49, which it hit on January 26, 2021. PLUG’s losses widened in the second quarter. In addition, the company’s business could be affected by supply chain constraints. So, PLUG’s near-term prospects look bleak.

Here is what could influence PLUG’s performance in the coming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For its fiscal second quarter, ended June 30, 2021, PLUG’s net revenue surged 83.2% year-over-year to $124.56 million. The company’s total assets increased 157.1% year-over-year to $5.79 billion. However, its operating loss increased 237.8% year-over-year to $89.64 million. In comparison, its net loss came in at $99.63 million, representing a 959.8% year-over-year increase. And  its loss per share was  $0.18, up 500% year-over-year.

Lofty Valuation

In terms of its forward P/S, PLUG’s 46.76x is significantly higher than the 1.66x industry average. Likewise, its 38.81x forward EV/S is considerably higher than the 2.08x industry average. Furthermore, the stock’s 4.68x P/B  is 47.4% higher than the 3.17x industry average.

Poor Profitability

PLUG’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the 13.18%, 6.53%, and 4.96% respective industry averages.

Unfavorable Analyst Estimates

Analysts expect PLUG’s EPS to remain negative in the current quarter, current year, and next year. Furthermore, its EPS is expected to decline at a 40% rate per annum over the next five years.

POWR Ratings Reflect Bleak Prospects

PLUG has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLUG has an F grade for Value, which is in sync with its higher-than-industry valuation ratios.

PLUG has an F grade for Quality, in sync with its lower-than-industry profitability ratios.

Moreover, PLUG has a D grade for Growth and Sentiment, which is in sync with unfavorable analyst estimates. In addition, the stock has a D grade for Stability, consistent with its 1.51 beta.

PLUG is ranked #89 of 91 stocks in the Industrial – Equipment industry. Click here to access PLUG’s ratings for Momentum as well.

Click here to check out our Industrial Sector Report for 2021

Bottom Line

PLUG reported disappointing earnings results in the second quarter. Also,  analysts expect its EPS to remain negative in the coming quarters. Since the stock looks overvalued at the current price level, we think it is best avoided now.

How Does Plug Power (PLUG) Stack Up Against its Peers?

While PLUG has an overall POWR Rating of F, one might want to consider investing in the following Industrial – Equipment stocks with an A (Strong Buy) rating: Compagnie de Saint-Gobain S.A. (CODYY - Get Rating), Finning International Inc. (FINGF - Get Rating), and Applied Industrial Technologies, Inc. (AIT - Get Rating).

PLUG shares were trading at $39.20 per share on Friday afternoon, down $1.03 (-2.56%). Year-to-date, PLUG has gained 15.60%, versus a 26.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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