Plug Power’s Deal With Renault Will Push PLUG Stock Above $100

Shares of hydrogen fuel cell maker Plug Power (NASDAQ:PLUG) soared in mid-January after the company announced a landmark partnership with major automobile maker Renault Group, in which the two will jointly design hydrogen-powered light commercial vehicles (or LCVs) for use in Europe. PLUG stock popped more than 15% on the news.

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The surge in PLUG stock makes complete sense. After all, this deal broadly underscores that Plug Power is increasingly turning into the technology backbone of the Hydrogen Economy.

To that effect, Plug Power supplies fuel-cell technology into every end-market from forklifts to recharging stations to datacenters to cars, at the same time that the Hydrogen Economy is ready to boom over the next few years on the back of falling costs, improving technology and robust legislative support.

Big picture: Plug Power is a future titan of the multi-hundred-billion-dollar hydrogen industry.

To that end, the big rally in PLUG stock — shares are now up ~1,200% over the past year — is far from over. Sure, I suspect that Plug Power stock will run into some near-term valuation and optical friction here, which will cause shares to consolidate over the next few months. But, long term, I see shares running above $100.

Here’s a deeper look.

From Forklifts to Everything Hydrogen

Plug Power has rapidly emerged as the unrivaled leader of the burgeoning Hydrogen Economy.

The company started out by selling hydrogen fuel cells to companies like Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) for use in their forklifts. Those fuel cells were broadly seen as a cost- and performance-efficient way for major warehouse operators to cut carbon emissions and improve productivity (since Plug Power’s fuel cells boast 99% uptime with constant power performance).

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That’s a solid market. Over the course of the next decade, hydrogen-powered forklifts will become ubiquitous across the $30 billion materials handling industry. A large portion of those forklifts will be powered by Plug Power’s hydrogen fuel cells.

But, the far more exciting thing about Plug Power is that this company has leveraged its leading hydrogen fuel cell and electrolyzer technology from selling all those forklifts, to expand its presence into much bigger markets.

For example:

  • In 2020, Plug Power made multiple strategic acquisitions to get into the “green hydrogen” production game, and is now positioned to turn into one of the leading producers of green hydrogen globally over the next decade.
  • In early 2021, Plug Power announced a landmark deal with SK Group to develop hydrogen fueling stations and systems throughout Korea.
  • A week later, Plug Power announced an even bigger deal with Renault — one of the top 10 automobile makers in the world — to develop hydrogen-powered LCVs in Europe.

In other words, over the past year, Plug Power has gone from selling fuel-cells for use in forklifts (a $30 billion market), to selling fuel-cells and green hydrogen for use in autos, refueling stations, data centers and more (a $300-plus billion market).

In so doing, Plug Power has emerged as the undisputed backbone of the burgeoning Hydrogen Economy. This leadership position implies that PLUG stock could run above $100 within the foreseeable future.

Plug Power Stock to $100?

After revising my numbers to account for recent strategic partnerships, I now see Plug Power stock running north of $100 in the long run.

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Here’s the back-of-the-envelope math:

The materials handling market measures $30 billion. Plug Power could easily nab 10% of that. Meanwhile, Plug Power will lean into its leading electrolyzer technology and production capability to nab ~5% of the $37 billion data-center power market, and leverage its Renault and SK Group partnerships to control at least 2% of the $300 billion “on road” market.

Add it all up, and Plug Power has visibility to $10-plus billion in revenues within the foreseeable future. I think it’s likely Plug Power hits that mark by 2028-2029. I also think it’s likely Plug Power scales to renewable-energy industry-average operating margins of ~30%.

Assuming so, my modeling suggests that Plug Power’s earnings per share will rise above $6 by the late 2020s. Based on a 20X earnings multiple, that implies a long-term price target for PLUG stock of $120.

Bottom Line on PLUG Stock

As Plug Power has leveraged its operating experience and leading technology to expand from selling fuel-cells for forklifts to selling fuel-cells for everything, it has become increasingly obvious that Plug Power is emerging as the technology backbone of the Hydrogen Economy.

That’s a multi-hundred-billion-dollar economy in the making. As the technical centerpiece of that economy, Plug Power is a $50-plus billion company in the making.

So, while I fully expect PLUG stock to run into overbought and overvalued headwinds in the near term, I also fully expect shares to keep powering higher over the long run.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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