Plug Power Inc (PLUG, Financial) experienced a daily loss of 5.13%, and a 3-month loss of 21.71%. The company also reported a Loss Per Share of 1.43. The question that arises is: is the stock significantly overvalued? This article aims to provide a comprehensive analysis to answer that question. Read on for a detailed valuation analysis of Plug Power (PLUG).
Company Introduction
Plug Power is building an end-to-end green hydrogen ecosystem—from production, storage and delivery to energy generation. The company plans to build and operate green hydrogen highways across North America and Europe. Plug will deliver its green hydrogen solutions directly to its customers and through joint venture partners into multiple end markets—including material handling, e-mobility, power generation, and industrial applications.
The company's stock is currently priced at $7.68, while its GF Value, an estimation of fair value, stands at $3.66. This discrepancy suggests that the stock may be significantly overvalued. Here is the income breakdown of Plug Power:
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $7.68 per share, Plug Power stock shows every sign of being significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Evaluating Plug Power's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Plug Power has a cash-to-debt ratio of 1.12, which ranks worse than 52% of 2844 companies in the Industrial Products industry. Based on this, GuruFocus ranks Plug Power's financial strength as 6 out of 10, suggesting fair balance sheet.
This is the debt and cash of Plug Power over the past years:
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Plug Power has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $879.80 Mil and Loss Per Share of $1.43. Its operating margin is -88.39%, which ranks worse than 95.48% of 2899 companies in the Industrial Products industry. Overall, the profitability of Plug Power is ranked 1 out of 10, which indicates poor profitability.
Growth is one of the most important factors in the valuation of a company. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Plug Power is 7.6%, which ranks better than 54.07% of 2737 companies in the Industrial Products industry. The 3-year average EBITDA growth is -94.2%, which ranks worse than 99.26% of 2425 companies in the Industrial Products industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Plug Power's ROIC is -24.37 while its WACC came in at 15.38.
The historical ROIC vs WACC comparison of Plug Power is shown below:
Conclusion
In conclusion, the stock of Plug Power (PLUG, Financial) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 99.26% of 2425 companies in the Industrial Products industry. To learn more about Plug Power stock, you can check out its 30-Year Financials here.
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