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Is there really 75% upside left in Plug Power’s share price?

Plug Power’s [PLUG] share price has continued to dim after the company revised financial figures following its March earnings update.

The maker of hydrogen fuel cells was forced to restate several non-cash items as an accounting error came to light.

“The revised accounting will change how the Company accounts for certain transactions and items, but is not expected to impact the Company’s cash position, business operations or economics of commercial arrangements,” Plug Power said in a statement.

The revision will increase 2020’s net revenue by $7.2m, while 2019 and 2018 revenue will lose $0.3m and $0.4m respectively. Plug Power still expects to achieve its previously stated gross billings targets of $475m in 2021, $750m in 2022 and $1.7bn in 2024.

Wall Street forecasts suggest there is a circa 75% upside on Plug Power’s share price but, given the recent falls, are they being overly optimistic?

“The revised accounting will change how the Company accounts for certain transactions and items, but is not expected to impact the Company’s cash position, business operations or economics of commercial arrangements” - statement from Plug Power

 

What’s happening with Plug Power’s share price?

Since 11 March, Plug Power’s share price has slipped 42.96% (as of 19 May’s close), dropping from $48.35 to $27.47. Even before having to restate accounting figures, Plug Power’s share price had been on the slide since hitting a year high of $75.49 on 26 January. Since that heady peak, the stock has tanked 174.8%.

The drops aren’t surprising considering financial irregularities pulverised Wirecard and Luckin Coffee last year. However, it’s important to note that there was no override of controls or misconduct, and KPMG has not reported the matter. Given Plug Power’s quick response, the current dip could be a buying opportunity.

42.96%

Plug Power's share price drop since 11 March

 

Is Plug Power a good investment?

So, is there still upside left in Plug Power’s share price, or is it time investors turned the lights off? Analysts tracking the stock on Yahoo Finance have an average $48.53 price target — a 76.67% upside on 19 May’s close. Following the restatement, Christopher Souther, an analyst at B.Riley, slashed his price target from $70 to $50. A slashed price target may raise eyebrows, but Souther’s new target is still 82% higher than Plug Power’s share price through 19 May.

H.C. Wainwright analyst Amit Dayalis also backed Plug Power’s share price, writing in a note: “with this issue now, in our opinion, basically resolved, investor focus should revert to the company's operations and expansion plans.”

The analyst cited Plug Power’s strong cash position and unaffected partnerships as reasons for optimism. Dayal has a $78 price target on Plug Power to go with his buy rating. On the bearish side is Barclays’ Moses Sutton with the analyst trimming his target from $28 to $24.

 

Where next for Plug Power’s share price?

Plug Power’s share price misfortunes can’t be blamed solely on accountancy errors. Investors are moving away from last year’s high growth stocks and towards ones that will benefit from the economic recovery — just look at banking stocks right now.

The promise of hydrogen and fuel cell technology saw investors pile into Plug Power last year. Inevitably, there was going to be some selling in the stock at some point, although this year’s drops have been steep. The clean energy investment theme has also dropped circa 9.8% over the past month.

9.8%

Drop of the clean energy investment theme over the past month

 

Still, in the mid-to-long term, Plug Power is eyeing up substantial growth in its underlying business. Next quarter, Plug Power has said it expects to post $70m in gross billings, up 60% year-on-year, and $67m in net revenue. In the second quarter, Plug Power expects gross billings to top $105m, up 50% year-on-year, with net revenue at circa $102m, again up 50% year-on-year.

Should Plug Power pull off this kind of growth, along with reassurances over the robustness of its accounting, then it could go some way to rebuilding confidence with shareholders.

Whether that’s enough to meet Wall Street’s optimistic forecasts remains to be seen.

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