In the first half of the year, it looked like fuel cell manufacturer Plug Power (NASDAQ:PLUG) was the place to be for huge stock gains. Starting out, Plug Power was one of the top five best-performing energy stocks on the market.
For those who like to be an early mover on a company and worry about missing the boat, don't feel too bad. Since that astronomical rise, Plug Power has fallen back toward Earth this year.
Don't get me wrong: a 90% gain this year as the rest of the energy sector has gone into a complete tailspin is very impressive. It just might not be what many people hoped for when they bought the stock at $7-$9 in March and April. As Plug Power falls to levels much closer to where it started 2014, some investors might wonder if it is time to reconsider this company. So let's look at what the company has done in 2014 to see if the investment thesis has changed enough that 2015 could be another great year for Plug Power.
You made me promises, promises
To get in the mood to talk about Plug Power's 2014, you might want this playing in the background, because it pretty much encapsulates the company's year. Plug Power's share price got off on the right foot following the company's business update call in December 2013. During that call, CEO Andy Marsh made some very bold statements about what the company planned to achieve in 2014. That list of anticipated achievements included:
- A major deal with one of its customers that would involve sales of 750-1,500 of its GenDrive hydrogen fuel cell battery replacement systems.
- Annual revenue would reach $70 million.
- Total order bookings would be in excess of $150 million.
- The company's product sales would break even on an EBITDAS basis in either the second or third quarter.
Then, when that major deal was actually announced (the customer was Wal-Mart) and the company announced a few other deals to add to the company's backlog of orders, investors -- I'm using this term loosely here -- and day traders went absolutely bananas for this stock. At one point during the year, the price of Plug Power was up more than 1,500% from prior to that December conference call.
Since that time, though, shares have slowly slipped as it became increasingly apparent that the company would not fulfill those other promises Marsh made. So far in 2014, following the $20 million order the company completed in December, roughly $120 million in total order bookings have come in. So unless there is another $30 million in orders announced between now and the end of the year, Plug won't meet that $150 million goal. Also, total revenue through the first nine months of 2014 adds up to $42 million, and based on the orders projected to go out the door this quarter, Plug Power won't come close to that $70 million revenue goal.
The worst prediction of all, though, was that product EBITDAS breakeven projection. Throughout the year, Plug Power has failed to decrease its production costs enough to make up any ground on this end, and a major ramp up in service and sales staff has led to EBITDA losses expanding throughout the year. So, of the four things management predicted for the year, only one came true. Hitting .250 might give you a long career as a backup catcher, but it's not the best record for an executive team that is supposed to be giving investors accurate guidance about the company's prospects.
Time to pick up shares now that the hysteria has cooled?
Some investors might be tempted to pick up shares in Plug Power now that it is trading at a total enterprise value-to-revenue multiple of 6.9 times (shares were trading as high as 35 times revenue just a few months ago). Also, since trading at that high multiple, the company has actually increased its sales significantly this year.
One word of caution: Management has a history of overpromising and underdelivering, and some rumors suggest the company is pushing product out the door that might not be completely up to snuff. This is a pure growth company, plain and simple, and one of the major tenets of investing in growth companies is finding a management team you can trust to make the right decisions. That trust is getting harder and harder to come by with Plug Power, which indicates the company might not be worth the risk.
What a Fool believes
If anyone had the foresight to pick up shares in this company at this time last year, then I applaud you because you made out fantastically. For those who got caught up in the hype surrounding the Wal-Mart order, though, my condolences, because the last few months have been pretty painful.
Many things need to happen to make Plug Power profitable, and some of the things management predicted would get it there in 2014 simply did not happen. Based on this, it's hard to see the company doing much better in 2015 without a major turnaround in the company's sales growth and its cost controls.