Plug Power Inc (PLUG, Financial) experienced a daily loss of -3.38%, and a 3-month loss of -19.33%. With a Loss Per Share of $1.43, it raises the question: is the stock significantly overvalued? This article aims to answer this question by providing a detailed valuation analysis. Read on for a comprehensive review of Plug Power's financial performance and intrinsic value.
About Plug Power Inc (PLUG, Financial)
Plug Power is a pioneer in building an end-to-end green hydrogen ecosystem—from production, storage, and delivery to energy generation. The company is planning to construct and operate green hydrogen highways across North America and Europe. Through direct delivery and joint venture partnerships, Plug Power will provide its green hydrogen solutions to various end markets—including material handling, e-mobility, power generation, and industrial applications. With a current stock price of $7.47 and a GF Value of $3.66, the company appears to be significantly overvalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, 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, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at.
According to the GF Value, the stock of Plug Power (PLUG, Financial) appears to be significantly overvalued. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $7.47 per share, Plug Power stock seems to be 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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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Hence, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. A good starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio and interest coverage. Plug Power has a cash-to-debt ratio of 1.12, which is worse than 51.98% of 2849 companies in the Industrial Products industry. GuruFocus ranks the overall financial strength of Plug Power at 6 out of 10, indicating that the financial strength of Plug Power is fair.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low 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 million and a Loss Per Share of $1.43. Its operating margin is -88.39%, which ranks worse than 95.52% of 2901 companies in the Industrial Products industry. GuruFocus ranks the profitability of Plug Power at 1 out of 10, indicating poor profitability.
One of the most crucial factors in the valuation of a company is growth. 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 53.98% of 2740 companies in the Industrial Products industry. The 3-year average EBITDA growth is -94.2%, which ranks worse than 99.26% of 2430 companies in the Industrial Products industry.
ROIC vs WACC
Another way to assess the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Plug Power's return on invested capital is -24.37, and its cost of capital is 15.37.
Conclusion
In conclusion, the stock of Plug Power (PLUG, Financial) gives every indication of being significantly overvalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks worse than 99.26% of 2430 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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