With the S&P 500 plummeting 32% from Feb. 20 to March 20, it's clear that fear had dug its claws into the majority of investors. Small-cap stocks in particular have felt the brunt of the sell-off as investors have eschewed investments that carry too much risk. During the above-mentioned period, the iShares Russell 2000 ETF, which seeks to track the performance of the Russell 2000 index, for example, plunged 40%. Similarly, Plug Power (NASDAQ:PLUG), a familiar name among small-cap stocks, has also fallen nearly 40% since Feb. 20, when it hit a multiyear high of $6.05.

For younger investors, times like these can be terrifying. More-seasoned investors, however, recognize that steep market sell-offs such as this one are the opportunities to build solid positions and plant the seeds of future growth. So let's zero in on the bull and bear cases regarding Plug Power to determine if today represents a good time for investors to pick up shares.

A handwritten clock that says time to buy.

Image source: Getty Images.

What's energizing the bulls?

Proponents of Plug Power will point to the company's five-year forecast as one of the most compelling reasons to buy the stock. It estimates that in 2024, it will generate $1 billion in revenue -- an eye-popping increase from the $230 million it generated on the top line in 2019. Looking in the rearview mirror, investors will find that the company's target is not so unrealistic.

Over the past five years, for example, Plug Power has grown revenue at a compound annual growth rate (CAGR) of 29%, and to achieve its $1 billion forecast, sales will have to rise at a CAGR of 34%. Management anticipates that providing its fuel-cell solutions to the material-handling equipment (like forklifts) market will continue to be its bread and butter, representing sales of about $750 million in 2024. But the company also anticipates making strong gains in the electric vehicle and stationary-power markets, where it forecasts generating sales of $200 million and $50 million, respectively.

Besides the company's potential top-line gains, Plug Power's expectations regarding profitability also have optimists champing at the bit. According to management, operating expenses will decline from 30% of revenue in 2019 to 10% by 2024, helping the company to generate operating income of $170 million. Additionally, management believes that in 2024, the company will recognize adjusted EBITDA of $200 million.

What's electrifying the bears?

Undeniably, Plug Power's projections of where it will be in five years are exciting. Skeptics, however, will point out that management revealed its forecast in September 2019 -- months before COVID-19 was on the radar. The wide-ranging disruptions to the economy, or emergence of future complications, could jeopardize the company's projected growth in ways which aren't apparent yet.

In addition, savvy investors know that it's usually wise to take management's forecasts with a grain of salt -- even when the world's not reeling from a pandemic. And in the case of Plug Power, instead of one grain, investors should take the forecast with a heaping tablespoon of salt. Management has a track record of overpromising and underdelivering when it comes to profitability forecasts.

Besides skepticism regarding where the company will be in the future, bears will point to its position in the present, which raises some red flags. Since Plug Power is unable to generate profits and positive cash flow, it has to rely on issuing debt and equity to keep its operation up and running.

PLUG Total Interest Expense (Quarterly) Chart

PLUG Total Interest Expense (Quarterly) data by YCharts.

Based on its forecast, Plug Power will begin to generate positive operational cash flow in 2020, but circumspect investors will point out that this simply means the company can service its debt; however, it will likely have to return to the debt and equity markets to meet its other financial requirements.

Moreover, bears will also point to the five-year forecast, but it will be to note that management is projecting profitability on an adjusted EBITDA basis. Investors should be cautious about putting too much weight on adjusted metrics since management can alter these figures as it sees fit. Whether the company will report profitability on a more-reliable GAAP basis, on the other hand, seems less probable.

What's a power-hungry investor to do?

While the uncertainty in the marketplace has charged up shareholders' fear response, those who are bullish on the long-term prospects of this fuel cell innovator may be itching to initiate a position or pick up more of the company's stock -- especially since the stock has retreated significantly from the multiyear high-water mark, which it hit several weeks ago. 

Because the company is unprofitable and doesn't generate positive cash flow, traditional valuation metrics aren't useful. Instead, we can weigh the stock in terms of sales. Currently, it's trading at 3.83 times sales, a slightly richer valuation that its five-year average multiple of 3.65. For those taken with the company's five-year forecast, this may seem like a worthwhile premium to pay, but only the most risk-tolerant of investors should consider a position at this point. The company's debt-laden balance sheet and history of diluting shareholder value are two glaring red flags that suggest investors would be better off seeking other small-cap opportunities.