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Executive Summary: Plug Power has had a history of under-delivering and has been a shareholders' wasteland that has seen investors lose time and again as the company nearly went bankrupt. Despite the trials and tribulations the company has survived and is looking to have its best year for bookings in a decade. Although the stock has appreciated as a trade, significant upside exists for investors as risks have diminished, sales are up exponentially and in 2014 the company could turn its first profit.

Wow. Can you believe the move that Plug Power (PLUG) has had in the last few months, including today? The headquarters of the company in Latham, NY is just a ten minute drive from my office. Each time I pass it, I always think of the times I didn't get into the stock and wish that I did. Then, the stock would fall hard and I'd be grateful I didn't touch it. The stock is certainly a traders stock, at least historically. But that is now changing. I remember considering a buy at 50 cents a share. Now I am in a boat that is shared with many others. What boat is that? It's the "did I miss it?" boat. The short answer to this maritime inquiry is yes, some of us missed out on the initial triple or quadruple bagger as the stock moved from penny stock to a sub $5 stock. However, in this article I will discuss why the stock is shifting from a trader's stock to an investment. I think there is significant upside potential in the name. While I would wait for a pullback, there are numerous reasons this stock offers significant upside.

Who is PLUG And Why Consider The Stock?

Plug is an interesting company that has had a long history of high expectations and subsequent disappointment for investors. It has made many people rich, and has clobbered others. The stock has always been about timing, relative to established blue chips. We may have missed the big move, but I think that on a pullback, the fundamentals are setting up nicely for continued high percentage returns.

PLUG works primarily on alternative energy technology. For the most part the business focuses on designing, developing, manufacturing and the sales of fuel cell systems for machinery. The primary technology it is involved in working on is known as the proton exchange membrane (figure 1) fuel cell and fuel processing technologies. It also employs technology to produce fuel cell and battery hybrids. More on the proton exchange membrane can be read here. A fuel cell combines hydrogen and oxygen to produce electricity and heat without combustion and exhaust.

Figure 1. Basic Diagram Showing How Plug Power's Proton Exchange Membrane Fuel Cell Technology Works.

The GenDrive system is one of PLUG's leading candidates for ensuring future profitability. PLUG only has just under 5,000 GenDrive powered forklifts deployed to date. It's barely a drop in the bucket compared to the overall market for these machines. But GenDrive may start to catch on. This system is unique. Please take a look at this link that has a short video of the system.

There are numerous benefits to the system. One huge issue is that traditional battery life for machinery is short. Batteries can't keep up with the demand for usage. This can limit industrial productivity. This is where GenDrive fuel cells come in. They provide continuous power at all times, running superior to a lead-acid battery even in freezer environments as low as -22°F. GenDrive-powered lift trucks continuously run at full speed and never require changing. Truck operators can conveniently refuel the units themselves at compact hydrogen fueling stations set in strategic locations on the floor of production facilities in a process that takes under two minutes. This allows more goods to be moved and increases productivity. This is why orders are expected to ramp up in 2014.

Further, with traditional batteries the standard practice is to have two, if not three, batteries to a truck. One in the truck, one charging in a charge station and one cooling after use. Standard practice also suggests purchasing more truck batteries than needed on an average day to cover spikes in throughput. With GenDrive the equation is much simpler.

One truck plus one fuel cell=a simpler life for industry.

This helps eliminates the labor costs associated with changing batteries and significantly reduces the wear on lift truck motors caused by battery droop. This results in reductions in maintenance and repairs and enhances the ability to manage peaks in productivity.

With a push for companies to "be green," a large initiative of the federal government and backed by environmental lobbyists, GenDrive can help customers meet this demand. The GenDrive power units produce zero harmful emissions during operation. The by-products of hydrogen fuel cells are heat and water. Unlike toxic batteries, fuel cells don't leave behind any lead and sulfuric acid, eliminating the need to pay for disposal and/or cleanup. The maintenance required is minimal, and technicians can service GenDrive units as easily as batteries. And with respect to product life-cycles, GenDrive will outlast batteries. As long as fuel is supplied, the fuel cell operates at full power.

The Bottom Line Benefits of GenDrive

Increase Productivity by up to 15%

Battery-powered lift trucks lose speed over the last half of the battery charge. GenDrive fuel cells maintain constant power at all times, keeping the vehicle running at full speed throughout an entire shift.

Lower Operational Costs by up to 30%

The GenDrive solution eliminates the need to change, charge and manage batteries. The units run longer than lead-acid batteries and can be fueled in as little as 90 seconds, substantially reducing vehicle and personnel downtime.

Reduce Site Emissions by up to 80%

The GenDrive fuel cell solution produces zero harmful emissions and eliminates the costs associated with handling and storing toxic materials.

Allow For More Operational Space

Compact fueling stations replace large battery charging rooms, freeing up valuable warehouse space for other purposes.

Significantly Reduce Peak Power Demand

The need for high-cost electricity is eliminated as battery charging racks are no longer needed.

Sales

Plug Power sells its products globally but mostly in the United States. It has a product sales team, and deals with original equipment manufacturers through a network of dealers. The company has a diverse customer base of large corporations, smaller businesses and government agencies. In recent quarters, the company has really stepped up. PLUG has received orders from Stihl, Mercedes Benz, Lowes (LOW), Walmart (WMT), Proctor and Gamble (PG), Coca-Cola (KO), and BMW. These companies have recognized the value in PLUG's technology.

Most Recent Quarter

The fourth quarter 2013 notwithstanding, PLUG has seen growing sales that justify its share price momentum, making it now an investable stock once again. From January 1 2013 to May 15 2013 the company had $1 million in bookings. Bookings exploded from May 15, 2013 to October 8, 2013 to over $11 million. Then from October 8th to November 14th 2013 (when results were reported), bookings surged to $14 million. These bookings are a mix of product sales and maintenance orders from significant customers (think Wal-Mart, P&G etc). At the time of the Q3 report, sales orders totaled $26 million for 2013 and are higher since. This is huge for a company that had been struggling. Many thought a reverse split was coming. Thankfully with the share price soaring it will not be necessary and the company has also met the NASDAQ listing requirements.

The CEO, Andy Marsh really got investors excited when he stated:

"The demand for fuel cells in the material handling market has always been robust. Our customers are expanding their successful deployments - and the word is spreading in the industry. Now that we have a strong balance sheet, that demand is turning into orders. I'm expecting a 'blowout' number of orders in the fourth quarter as we start to close some of these multi-site deals and gain new customer wins. I believe that this momentum will result in the 2014 revenue we need to achieve our EBITDAS break even goal."

Let's Talk Numbers

Total revenue for the third quarter of 2013 was $4.6 million, comprised of $4.2 million for product and service revenue and $0.4 million for research and development contract revenue. This compares to total revenue of $4.8 million in the third quarter of 2012, which was comprised of $4.3 million for product and service revenue and $0.5 million for research and development contract revenue. Research and development expenses for the third quarter of 2013 were $0.8 million compared with $1.3 million for the third quarter of 2012. Selling, general and administrative expenses were $2.8 million for the third quarter of 2013 compared with $3.1 million for the third quarter of 2012. Additionally, $0.6 million was expensed for amortization of intangible assets during the third quarter of 2013 and 2012.

PLUG shipped 155 units during the third quarter of 2013 compared to 186 units in the third quarter of 2012. So this was a decline, but I believe it is a calm before the storm of orders to come in 2014. But there was still a net loss for the third quarter of 2013 of $16.0 million, or $0.19 per share on a basic and diluted basis. Included in the net loss for the third quarter of 2013 was an $8.2 million charge related to the change in fair value of previously issued common stock warrants. Net loss for the third quarter of 2012 was $10.3 million, or $0.27 per share. So the company lost less money, which is an improvement, but I see PLUG earning, not losing money per share by the end of 2014.

Has Not Been Profitable, But That Is Changing. Big Q4 2013 and a Huge 2014 Expected

Back in 2009, the company thought it would be profitable in 2012. Well, it took until 2013 to make things happen, but that's why the stock could be an investment after a pullback. At the time of this writing shares are at $2.03 on news that it met its fourth quarter sales order target. In discussing the sales during Q4, the CEO Andy Marsh stated:

"Plug Power has continued to deliver value to material handling customers through its GenDrive product suite," said Andy Marsh, CEO at Plug Power. "Moving forward, as we significantly grow the business, Plug Power will increase its value-add for each customer through building our product base and establishing recurring revenue streams through hydrogen and service. Plug Power has seen significant traction closing out 2013, and we expect the first quarter of 2014 bookings to meet or exceed the fourth quarter of 2013."

That last sentence is key. They will meet or EXCEED Q4 2013 bookings. That is why I believe the stock can be bought for significant upside on a pullback. No doubt in Q4 PLUG made significant progress. PLUG secured a contract to deploy multiple sites with a single food distribution customer using the GenDrive technology. This will also include products, service, and hydrogen for its customer. The company also saw repeat business with key material handling giants like Walmart, Kroger (KR), Mercedes Benz, and BMW, resulting in fleet expansion and follow-on orders. These orders include both products and recurring revenue for service. The company also saw the addition of several new customers to its growing customer base. We will need to wait a few more weeks for actual financial results and details of customer order. These will be presented during the Q4 and year-end conference call. PLUG will also be holding its next business update conference call on Tuesday, January 14 at 10:00 am (Eastern Standard Time).

Risk

PLUG has historically has issues with finances and has nearly gone bankrupt, but has managed to pull through. Plug Power is still not profitable, YET. The company has a deficit of over $820 million and has losses of about $20 million for 2013 (estimated). The initial costs to acquire GenDrive technology for companies are expensive, though not prohibitively so, as there will be a return on investment. The high costs relative to traditional batteries could ward off smaller would-be customers. That said, the overall cost savings are impressive and there is a return on investment the initial costs could hinder orders. This could change if the cost of hydrogen refueling stations and product development comes down but for now costs are preventing exponential growth. But with Q4 bookings at an outstanding level and Q1 2014 bookings expected to be significant, major corporations are ponying up the cash for PLUG's offerings.

Conclusion; Significant Upside Potential Despite Some Risk

PLUG has been in business since 1997. It has had a lot of ups and downs in its storied history and has made traders a bundle, but has lost investors significant sums over time. That is all about to change. 2014 is the turnaround year for this company. Bookings have grown exponentially. The company should turn a profit in 2014 based on these huge sales gains. The customer base is growing. PLUG's green GenDrive technology, once thought to be too expensive for companies to obtain, will increase productivity on the floor for these companies, in turn helping their bottom line. This is why PLUG has seen massive sales growth. Bookings are expected to come in at the same pace as Q4 2013 in Q1 2014, if not exceed the sales. When all of this is taken into account, this stock has significant upside potential, even after tripling in Q4. I advise waiting for a pullback to get a better price, and also tuning in for the call in two weeks as well as listening to earnings closely.

Source: PLUG Some Power Into Your Portfolio For Significant Upside