Yesterday, I told you about how Plug Power (PLUG -9.07%) turned a positive press release about a partnership promising to build a hydrogen fuel-cell airplane engine capable of flying over 600 miles without refueling into... a 7% decline in stock price.
Today, we'll look at a different aspect of the story -- and one that continues to contribute to forcing Plug stock lower, down 4.6% as of 12:30 p.m. EST. Today we'll talk about the downgrade.
As you'll recall, Plug's sell-off yesterday began when the company announced that its 10-K annual report to the SEC isn't quite ready for prime time just yet, and the company is going to need a bit more time to get it finalized. Even before that news broke, however, one Wall Street analyst was already having second thoughts about Plug.
In an early morning downgrade yesterday, British banker Barclays announced it had cut its rating on Plug stock from equal weight (i.e., neutral) to underweight (i.e., sell).
Why? On the one hand, Barclays still likes Plug's business model -- a lot. Plug remains "the elder statesman of the budding hydrogen economy," declared Barclays in a note covered by StreetInsider.com. The company's "vision" has been "clairvoyant" as Plug married green hydrogen production to its existing business of building fuel cells that run on hydrogen gas. Barclays also praised Plug's establishment of multiple international joint ventures to share the costs of exploiting these opportunities.
All that being said, a "fundamental disconnect" has developed between the true worth of Plug's business (which the analyst estimates at $29 a share) and the share price that investors are currently paying -- more than $46 a share. Until that disparity is erased, the analyst wants to "rein in" its exposure to Plug stock.
Simply put, the stock market has "overpriced [Plug's] ambitions." Plug stock, currently valued in excess of $27.5 billion -- or nearly 90 times sales (Plug still has no earnings by the way, and never has earned anything) -- cannot be justified even if literally everything goes right for the company over the next five or so years. And I cannot disagree.
At today's share price, Plug stock costs 95 times the profits that it might (according to analysts) or might not earn five years from now. That's an insane valuation, and Barclays is right to warn investors not to buy Plug.