Seeking Alpha article 3 Reasons Plug Power Could Take Off Soon
Apr. 16, 2021 4:15 PM Summary
- Hydrogen has the full support of the EU and is gaining traction in the U.S. too.
- Plug Power offers exposure to hydrogen and has imminent catalysts that could send the stock higher.
- While, in the short term, the stock could fall as low as $14, I reiterate my long-term PT of $261. Thesis summary
In my last article on Plug Power (NASDAQ:PLUG), I covered some general points of the company and provided a valuation using Elliott Wave Theory. Today, I’d like to focus on what I consider to be three imminent catalysts that could catapult Plug back into the $60 range. Hydrogen energy is a controversial subject, but overall, I think there are now enough use cases and institutional/government support so that hydrogen companies like Plug can grow and achieve profitability. Europe loves hydrogen, and America is coming around
It was aptly pointed out by some readers in my last article, that I forgot to mention a very significant partnership between Plug Power and Acciona S.A. (OTCPK:ACXIF). Quite a miss on my part, considering Acciona is one of the largest companies in my country, Spain.
Acciona and Plug Power are launching a JV in Madrid to operate, develop and maintain green hydrogen projects. Plug Power will benefit from this by being the primary provider of electrolyser technology, while Acciona will provide green electricity. This JV entails an initial investment of $2 billion and has the objective of capturing 20% of the hydrogen market in Spain and Portugal by 2030.
This agreement comes on the heels of the EU’s big commitment to the hydrogen economy, pledging last year to invest $550 billion into hydrogen, which Goldman Sachs estimates will be a trillion-dollar industry by 2050. More immediately though, the launch of the European Green Hydrogen Acceleration Centre (EGHAC) promises to deliver a €100bn per year hydrogen economy by 2025.
The bottom line here is that, while hydrogen technology may not yet be “profitable” or “practical”, there is a big commitment in Europe to find out exactly what hydrogen can do for us. America is now getting ready to follow suit, with Joe Biden intending to spend at least $2 trillion in the green economy. The Biden/Harris website cites hydrogen and battery technology amongst the areas of investment that this plan will reach. Settling the accounts and “charging” the balance sheet
As most readers interested in Plug will know, the company has had a black cloud hanging over its head ever since it was announced that the company will have to restate its financial settlements of the last few years. We should get the restated accounts sometime next months, and I expect the stock will rally hard on the news. This “counterintuitive” dynamic took place earlier this week when Alibaba Group Holdings (NYSE:BABA) rallied over 8% on news that the Chinese government was fining the company $2.8 billion.
The only logical explanation is that the market had already baked in the news, and probably expected far worst. This makes sense since we did see BABA stock perform poorly over the previous weeks. I would expect the same kind of “bad news rally” to take place next month with Plug.
While we’re on the subject of the balance sheet, I will also mention in this section that Plug Power has now been officially invited to submit a Part II Application for a $520 million loan from the Department of Energy, under the Title XVII Loan Guarantee Program. Plug Power plans to build a 500-ton green hydrogen network by 2025, and receiving this loan will be a huge milestone for the company. A virtuous cycle in the mining industry
Earlier in the article, I mentioned that hydrogen’s applications are still limited. Indeed, hydrogen is not as easy to produce and transport as other energies, but little by little we are seeing signs of new applications being put into place. A great example of this can be found in Anglo American Plc (OTCQX:AAUKF), which announced on the 4th of February that it would be trying out 300-tonne hydrogen-fuelled trucks in its South African mines.
If hydrogen technology becomes commonplace in the mining industry, it would be great news for Plug and other hydrogen players. For those that have been following my other articles, you may know that I am quite bullish on precious metals and other materials like copper. For starters, these serve as hedges against inflation, which we may very well see pick up in the next few years. Most importantly though, metals like silver, copper and platinum are necessary components behind much of the technology behind renewable energy and battery.
For this reason, I believe we could be looking at a virtuous cycle taking place, whereby hydrogen technology is used to power mining, increasing demand for hydrogen and batteries which in turn increases the need to mine these metals.
Once again, I will emphasize that I acknowledge that hydrogen is not yet “practical”. And yes, we have seen hydrogen get hyped up in the past without this translating into real changes in the hydrogen sector. Could this time be different? I believe there are indications that it could be, but I may be wrong. Valuation and risk management
In my last article, I used the controversial Elliot Wave Theory to determine key support and price target for Plug Power. I’ll gracefully admit that the $31-32 level which I mentioned has broken, which I did not expect. However, from an EWT standpoint, this is perfectly reasonable, and I will take this chance to average down at the right levels.
Source: Author’s work
Whether you are looking to average down, start a position or even exit this investment, I think EWT can be of help. The 61.8% extension, which is the 38.2% retracement from the wave 3 top, could be another key level for the stock. This point also correlates with the previous high achieved in 2014, of around $12, so it’s a good place, in my opinion, to enter the stock. If this support broke, I might reconsider my position. Having said this, there is no reason the stock should fall this low, and I will personally consider adding some more if it reaches the low 20s. Takeaway
By no means am I recommending you invest heavily in Plug. I consider myself a reasonably conservative investor that likes cash flow just as much as the next guy. But it’s fun, and sometimes rewarding, to take a “gamble” on some more speculative plays. Plug Power has problems, but it also has a lot of opportunities. With the help of the government and breakthroughs in battery tech, hydrogen can become commonplace in the economy. It may be years, or it may not happen, but I see encouraging evidence that drives me to gain exposure to this sector. Plug specifically, has some very imminent catalysts, and I think the tides could soon change. After all, it’s always darkest before the dawn.