Plug Power Set For Strong 2015
I Know First Research | Feb 26, 2015 08:03AM ET
Summary:
- Plug Power Set For Large Growth In 2015
- Plug Power will become “EBITDA” break-even by the fourth-quarter of 2015
- The company’s stock price has risen over 20% in the past month, in accordance with Algorithmic Forecast from January 20th
- Algorithmic Forecast For Last Month and for 2015
Plug Power Inc (NASDAQ:PLUG), an alternative energy technology provider, is engaged in the design, development, manufacturing, and commercialization of fuel cell systems for the industrial off-road markets worldwide. Plug Power uses cost effective solutions to increase productivity, lower operating costs, and reduce carbon footprints. Its signature solution, GenKey, provides an all-inclusive package for customers, incorporating GenFuel hydrogen and fueling infrastructure, GenCare aftermarket service and either GenDrive or ReliOn fuel cell systems.
Last year was a turning point for Plug Power, as the launch of GenKey, strong sales growth, and promising new market initiatives set the company up for an exciting 2015. Sales have soared over the last few quarters on strong demand for its GenKey product, an integrated suite of GenDrive fuel cells and services, but the company sometimes has to contend with choppy revenue recognition. The company’s executives announced lower revenue projections than it was expecting, with the latest revenue projections for 2015 at $100 million. Previous estimates put the revenue projections for the year closer to $120 million.
While this could be interpreted as bad news for the company’s outlook, it should actually end up having a positive impact. Plug Power CEO Andy Marsh said the lower projections were not due to slowing acceleration of sales, but because of how revenue is recognized. The company cannot recognize sales as revenue until the product is shipped. Marsh also emphasized that he would rather under promise and over deliver, setting the company up to be successful during the upcoming year compared to Wall Street estimates.
Plug Power believes it can grow revenue by 40% this year, even with the lowered revenue projections. The fuel cell company expects to book $200 million in orders this year, up from $150 million last year. Marsh stated that he expects to add six new customers this year, while continuing to grow orders with current customers. The company is seeing recurring orders from its existing customers, indicating that they are satisfied. The current customer base is rather strong, including automobile giants such as Mercedes Benz (XETRA:DAIGn) and BMW (XETRA:BMWG) and large retail customers like Kroger (NYSE:KR) and Wal-Mart (NYSE:WMT).
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To keep its customers happy and maintain their business, Plug Power introduced its own GenFuel stations. The hydrogen fueling infrastructure is expected to be a bigger part of their market in the future. These will provide operational efficiencies and cost savings to its consumers. Customers already signed up for this service include Wal-Mart and FedEx (NYSE:FDX). The company also provides after market service, another stream of revenue that keeps customers satisfied.
Plug Power also announced changes to its corporate management team that provides the structure needed to enable the company to translate success and momentum generated in 2014 into profitable growth opportunities in 2015. Tim Cortes joined the company as Vice President of Hydrogen, and he will oversee the GenFuel business. His knowledge of investment planning will enable the company to more effectively expand into adjacent segments. Jose Luis Crespo was also promoted to Vice President of Global Sales, a new position for the company, and will be responsible for market entry for the GenDrive and ReliOn brands.
What really makes 2015 such an interesting time for the company is it appears set to become profitable by the end of the year. With the most recent financial projections discussed earlier, Plug Power will become “EBITDA” break-even by the fourth-quarter of 2015, meaning earnings before interest, taxes, depreciation, and amortization will be positive instead of a loss. The company’s operations have never been profitable before, a big step for the publicly traded company.
Figure 1. Source: .Yahoo (NASDAQ:YHOO.O) Finance
A closer look at Plug Power’s operations shows why the company is set to become profitable this year and why the stock is so attractive for investors at this point in time. Figure 1 shows the companies research and development in the blue bars and total operating expenses in the red line. The total operating expenses continues to go up as the company grows, but the research and development investment has decreased and remains low. The company is coming to scale, as it has introduced the technology and products to be successful.
Figure 2 shows selling general and administrative expense (SG&A) in the blue bars and gross margin percentage in the red line. This table shows that SG&A expenses have increased 20% in the last year. At the same time, gross margins have been steadily increasing over the last 18 months, and look like they will break even if the trend continues. The two tables taken together show the company is now focused on becoming profitable, focusing more on sales of the products it already has instead of creating new products. Plug Power’s ability to scale sales up and turn gross margins positive make this small-cap company extremely attractive to any long-term investors.
Figure 2. Source: Yahoo Finance
h3 Algorithmic Forecast From Last Month/h3I Know First is an investment firm, that utilizes an advanced self-learning algorithm based on Artificial Intelligence (AI) and Machine Learning (ML) that also incorporates elements of artificial neural networks, as well as genetic algorithms, in order to model and predict the flow of money in almost 2,000 markets from 3 days to a year.
Plug’s stock price has risen over 20% in the past month. I Know First singled out Plug power as a strong stock to buy at the time in an article at Seeking Alpha titled “Top 10 Reasons Why Plug Power Is An Attractive Stock Right Now - Fundamental And Algorithmic Analysis”. Since that article was posted, the stock price has increased 24.62%, offering a healthy return to investors that bought the stock.
The I Know First algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate predication in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.
Figure 3, below, is an I Know First algorithm prediction made on January 20th, 2015.
The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.
In this forecast, Plug Power had a signal strength of 157.89 and a predictability indicator of 0.27 for the one-month time horizon. In accordance with the algorithm’s prediction, the stock price increased 21.35% over that time.
Figure 3. 1-Month Algorithmic Forecast Updated January 20th, 2015
Algorithmic Forecast For 2015
Having demonstrated how I Know First’s algorithm was able to correctly predict the movement of Plug Power’s stock price earlier in the article, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. Figure 4 includes the three-month and one-year forecasts for Plug Power from February 22nd, 2015. In both forecasts, Plug Power has a positive signal, indicating the algorithm is bullish for the stock.
Figure 4. 3-Month and 1-Year Forecast Updated February 22nd, 2015
Plug Power is set up for an extremely strong 2015, as the company is now focused on becoming profitable. The company has a strong costumer base, with customers continuing to use the products, and is in line to add attractive customers to continue to grow its sales. It is in an extremely attractive market for upside investors, as the stationary fuel cell markets are expected to grow to $14.3 billion in 2020. The market had been valued at only $1.2 billion in 2013, showing that Plug Power has plenty of growth potential in the coming years. Along with a strong algorithmic analysis, the strong fundamentals of the company mean its stock price will continue to soar in 2015, and investors should add this equity to their portfolios while the price remains relatively low.
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