Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Shares of Plug Power (PLUG 3.68% ) , the fuel cell company that's also building a green hydrogen business to power the fuel cells it sells, saw its stock price drained on Wednesday.
Its shares slid 6.7% through 12:40 p.m. ET after an analyst at investment bank J.P. Morgan cut his price target on the stock by 12.5%, to $28 a share.
That may not sound like such terrible news. Plug Power stock sells for only $16 a share right now, so a move to $28 over the course of the next 12 months would imply a staggering 75% profit for new investors. (And indeed, anticipating this, the analyst rates the stock as overweight.)
But not all of today's news is so good.
The reason the analyst cut his price target is because he says he sees "margin headwinds" for the stock arising from the still-elevated price of natural gas. With much of the fuel used by its fuel cells still coming from natural gas rather than green hydrogen (hydrogen separated out of water atoms through electrolysis, with help from renewable power), high gas prices mean high input costs for Plug Power's fueling and servicing businesses.
What does this mean in dollars and cents? Until the company starts producing appreciable amounts of green hydrogen (expected to happen toward the end of this year), the analyst is calculating that its gross profit margins will be negative -- at -11.2% in the second quarter and -1.5% for the full year, for example -- despite green hydrogen factories slowly starting to come on line.
The investment bank's prior estimates had forecast Plug earning a 3.3% gross profit margin in Q2 and nearly doubling that margin to 5.7% by year-end. It probably also means that consensus analyst estimates, which see the company losing $0.75 per share this year, are overly optimistic. Instead, Plug may lose far more and miss those estimates.
Highlighting deteriorating margins, and warning of an earnings miss, seem a weak foundation on which to argue that Plug stock is going up 75% -- but maybe that's just me. For now at least, it still adds up to a buy thesis for J.P. Morgan.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.
Making the world smarter, happier, and richer.
Market data powered by Xignite.