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Summary

  • Citron's report has hurt Plug Power, but its long-term prospects remain strong, as the fuel cell industry is expected to grow at a rapid pace.
  • Plug Power already has a solid base of customers, and it is looking to attract more with its suite of services and products.
  • Plug Power is aggressively focusing on cost reductions, and plans to turn in a profit this year.
  • Analysts expect Plug Power's earnings to grow at a terrific pace.

Fuel cell maker Plug Power (NASDAQ:PLUG) has been on a tearing run this year, with shares up close to 340%. However, short-seller Citron Research has somewhat spoiled Plug Power's party by calling it a "casino stock." According to Citron, the fair value of Plug Power shares is just $0.50, while the stock currently trades at around $7.15 as of this writing. Citron explains its thesis by saying:

Well over a decade as a public company, during which they have lost close to $850 million while developing no (intellectual property) or meaningful revenue growth.

But, in my opinion, Plug Power is still a solid investment, as the thesis should be based on the future, not what has happened in the past. For example, analysts at Reportlinker project that the fuel cell industry is presently in a nascent stage and has huge growth potential going forward. The firm expects the market to grow at a CAGR of 22% during 2014-2020, suggesting that Plug Power has solid prospects ahead of it.

Positives all around

In fact, Plug Power has already been reporting solid growth, with revenue growing 35% in the previous quarter. The company expects to turn profitable this year, setting the stage for a strong performance going forward.

Plug Power, despite operating in a competitive environment, is posting solid growth. Well-known companies, such as Wal-Mart (NYSE:WMT), Kroger (NYSE:KR), BMW, and Mercedes are driving its growth, leading to new order bookings worth $32 million in the fourth quarter. In addition, Plug Power has a strong balance sheet, and it has maintained a strong cash position of $66 million, driven by fundraising initiatives and the exercising of warrants.

The way ahead

Now, the company is focusing on product development, and its newly-announced GenKey suite of hydrogen fuel cell products and services are expected to drive its financial performance going forward, while also giving it a competitive advantage over peers.

Also, Plug Power has witnessed successful fuel cell beta trials at Wal-Mart, leading the retail giant to purchase GenDrive units for its food distribution center in Washington Courthouse, Ohio, and the Wal-Mart Canada facilities in Balzac and Cornwall for a total of 535 GenDrive deployments.

GenKey has unique features that have attracted several potential customers. GenKey enables a smooth transition away from lead acid batteries by giving customers the entire kit needed for incorporating hydrogen fuel cells into their business operations. Further, Plug Power is focusing on innovation in its product line to enhance the services that it provides.

In addition, the GenFuel and GenCare suite of products are also performing well. These products are enabling customers to take advantage of Plug Power's economies of scale to obtain cost-effective, cost-efficient hydrogen fuel. Further, Plug Power is also focusing on after-sales service by delivering preventive maintenance, a rapid response service, system monitoring, and periodic system enhancements. These moves should result in more customer satisfaction and help it expand the customer base.

Becoming cost-effective

Moving ahead, Plug Power is focusing on being more cost-effective by reducing material costs and improving the efficiency of its service business. The company is undertaking many initiatives and studies to increase its profit margin. Further, an increase in global sourcing, combined with additional leverage from volume is expected to be a key driver of Plug Power's cost improvement initiatives. For understanding the key elements of raw material markup, Plug Power is undertaking detailed cost analysis.

Driven by its cost-reduction initiatives, Plug Power is expecting its gross margins to increase above 25% in 2014. This will be achieved by reducing compressor costs by 29%. Also, due to the increase in sales, Plug Power is making moves to shift internal components to a lower-cost die-cast process, leading to better margins.

Conclusion

Thus, we see that Plug Power is making a lot of good moves to grow the business. Analysts are also hopeful about the company's prospects, with earnings expected to grow 73.5% this year and 155.6% next year. Since Plug Power isn't yet profitable, it doesn't have a trailing P/E ratio, but given the terrific earnings and revenue growth that's expected, investors should definitely consider this stock for their portfolio.

Source: Plug Power's Recent Drop Is A Great Opportunity