Plug Power: What Would a Good Quarter Look Like?

With the start of earnings season, what should investors expect from Plug Power's earnings?

Jul 16, 2014 at 4:05PM

With the recent release of Alcoa's earnings, earnings season has officially begun. Even though Plug Power's (NASDAQ:PLUG) earnings report is still weeks away, it's never too early to talk about earnings expectations. And if there's one company whose earnings need to be put under the microscope, it's Plug Power. The company's management has consistently over-promised and under-delivered for many years. The failure to execute has cost Plug Power investors significant mental and monetary capital and almost put the company out of business a few short months ago.

But as sometimes happens in bull markets, Plug Power had an astonishing run of good luck with contract wins and won a new lease on life after raising $116 million amid the euphoria. Now that it has a second chance, investors are very focused on management's execution abilities. So, what numbers are investors expecting from Plug Power?

Analyst estimates and management guidance
Well, for the second quarter, analysts expect Plug Power to lose $0.04 per share on revenue of $16.95 million. 

Since management guided for positive EBITDA for the full year of 2014, many investors expect break-even or higher EBITDA for the quarter as well.

Other metrics
Since Plug Power is a growth company, growth metrics are also very important.

Investors in particular would like to see Plug Power win more contract deals and add to its $80 million in bookings, as significant new bookings are a sign of market validation for Plug Power's product. For Plug Power's valuation to make any sense, the company would need to increase its bookings/revenue several-fold in the coming years. In fact, it would need to take in 10 orders the size of Wal-Mart's just to come close to living up to its current valuation, and that's a tall order. So a good quarter would be for the company to win significantly more contracts.

Secondly, investors would like to see continued product cost reductions. In an investor presentation, Plug Power said it averaged product cost reductions of 10% year over year since 2010. Since Plug Power now has more orders and more capital to improve efficiency, investors would like to see the product cost reductions continue. If those cost reductions continue, Plug Power's margins should improve.

Finally, investors would like to see Plug Power successfully integrate ReliOn into its operations. If Plug Power successfully integrates ReliOn fuel cell stocks into its fuel cell systems, it should be able to capture more value and depend less on fuel cell stacks made by Ballard Power Systems, Inc (NASDAQ:BLDP)

The bottom line
Financial markets are sometimes dangerously focused on the short term. In many cases, this focus is unwarranted. It sometimes takes multiple quarters or even several years to turn a company around. One quarter's numbers rarely do a company justice.

But in Plug Power's case, the company has had a decade to prove itself. It let its investors down. Yet given the renewable energy tax credit and the significant publicity the company has received over the past half year, Plug Power currently has significant tailwinds. If Plug Power cannot succeed in these favorable conditions, it will not be able to succeed in tougher conditions. Basically Plug Power's next couple quarters are a litmus test on whether management can execute. 

Given that Plug Power is significantly overvalued by almost all metrics, long-term investors should wait and see whether management actually executes in the coming quarters before considering making an investment. If the spate of contract wins is just the beginning of a bigger wave and the company manages to turn those contracts into profits, there might be a bright future for Plug Power after all. 

Have you heard of this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information