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(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

The fuel cell industry is dynamic with lots of innovations to show for which topped the $1 billion mark in revenue last year. Replacing traditional batteries for fuel cells is still going strong, and experts estimate revenue could grow to $2.5 billion by 2018. Investors across the board benefited in many ways. Charts of so called clean energy index trackers reveal an impressive bull run. However, we stumbled upon a small and little-known technological pioneer that investors seem to have overlooked. We are talking about Plug Power (NASDAQ:PLUG). It has been listed on the stock market for many years, but somehow ended up in a forgotten corner. Unwarranted as this article explains, because it turns out this company in fact offers a surprisingly compelling risk/reward opportunity.

Company overview

Plug Power is an alternative energy technology provider which engages in the design, development, commercialization, and manufacture of fuel cell systems for the multi-billion worth industrial material handling markets worldwide. Its product line includes GenDrive products, see example pic below, for industrial off-road consisting of forklift or material handling applications, with a focus on multi-shift high volume manufacturing and high throughput distribution sites. The company sells its products to businesses, government agencies, and commercial consumers through direct product sales force, original equipment manufacturers, and their dealer networks. Plug Power Inc. was founded in 1997 and is headquartered in Latham, New York.

A promising turn-around is underway

We believe a turn-around is underway which Wall Street has not noticed yet. 8 reasons why the situation is different now:

1) There were some replacements in the executive team

2) Shipments follow orders now more quickly, so revenue can be accounted for in a timely manner

3) The balance sheet has been cleaned up

4) A cost efficiency program has been implemented, trimming down operational and financial cash outflow

4) The quality of the technology and products have improved greatly, as consumers and the US Department of Energy lately validated

5) The company is finally to reap the benefits of a long-term build-up of an extensive consumer list

6) New markets are being explored to boost revenue

7) There is a huge backlog of orders

8) Plug Power is now a dominant player in the material transport sector

According to management:

"..Plug Power has invested in the development at many large Fortune 500 companies in the past 4 years. Our customers today own over 250,000 forklift trucks. To reach profitability, the company needs only a small share of their overall grid business, approximately 3,000 units a year. When one considers the buying power of our present customers and our continual quest to develop new business and expand geographically in Europe, the revenue opportunity for the company within 3 years is multiple hundreds of millions of dollars on an annual basis.."

Also, we expect a reverse split is in the making. Shares of Plug, according to NASDAQ rules, should trade above the $1.00 mark in the near future. Shares could be driven above this mark by market forces alone, but a reverse split is more likely. This is good news. Academic research proves a reverse split in most cases does well for investors.

Insider trading

In this turn-around phase, insiders acquired a lot of shares, and bought a few times on the public market. No selling took place, so no red flag here.

Financials & valuation

Let's look at some basic financials.

A few weeks back, Plug Power filed a public stock offering. This has strengthened the cash balance, which should avoid a new stock offering in the short term. The company is also implementing a cost efficiency program which should dampen the cash burn over time. Furthermore, management expects steep revenue growth, which could double revenue in a year. The mix of a sound balance sheet, low cost structure en strong revenue growth should catapult Plug into profitability within one year.

How much should a Plug share be worth?

There is a very reasonable chance they reach $50M revenue in a year. For a tech company which is dominant in their industry, with sound financials, we apply a same price-to-sales ratio as it is now. That gives a market cap of $120M. Shares outstanding totals 80M, so we derive a price of $1.50. That is double the current price. From there on, revenue could multiply beyond 2014, and combined with profitability could cause the market cap to multiply as well.

Technical analysis

Shares are trading above the MA50 and MA200. Support levels lie at $0.50 and $0.37 which limit downside risk. Plug is a buy from a technical point of view.

Risks

Investors should bear in mind the next risks:

- Plug is still operating at a loss, which could be an incentive for another dilutive stock offering. However, given the cleaned up balance sheet, we do not expect one in the short term. We do not rule this out in the longer term, as long as Plug keeps incurring a loss.

- Expectations set by management are quite ambitious. This company has not been run very well in the past, so a noticeable risk is there will a repetition of poor execution.

- It could be that the share price keeps trading below the $1.00 mark meaning NASDAQ rules won't be met. De-listing could then be a viable threat. We do not expect this to happen, but one cannot rule this out completely.

Conclusion

Plug Power is a pioneering tech company with a specific near-monopoly take in an expanding fuel cell industry. Left aside by Wall Street, the company now offers a very compelling risk/reward ratio to investors. Financials are sound, and with steep revenue growth for years to come the share price could multiply. As soon as Wall Street takes notice of the potential, Plug Powers share price could soar imminently.

Recommendation: Speculative buy, short-term price target $1.50, long-term price target $2.40

Ticker code: PLUG

Listing: NASDAQ

Market capitalization: $60 million

Average daily volume: 3.4M

Next earnings date: 13 November 2013

Source: Plug Power: A Small Fuel Cell Pioneer Nearing Profitability And Revenue Multiplication