What Is a Fair Value for Plug Power and FuelCell Energy?

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Since the beginning of the year, fuel cell makers Plug Power Inc. (NASDAQ: PLUG) and FuelCell Energy Inc. (NASDAQ: FCEL) have posted share price gains of around 289% and 76%, respectively, with most of the spike coming since the middle of February. A year ago, Plug Power stock was trading at $0.25 on its way down to $0.15. The stock closed Monday night at $5.69, after peaking at $11.72 on March 10.

The story is roughly the same for FuelCell Energy. Shares traded at $0.97 a year ago and are up 150% since then, closing last night at $2.49, after peaking at $4.74 on March 10.

What is a fair value for these two hot stocks? We start with the belief that these stocks are (probably) worth somewhere between their 52-week lows and their 52-week highs. As earnings are still elusive, or will be low for the sake of growth, we’ll use revenue as a guidepost.

Plug Power posted 2013 revenues of $26.6 million and is forecast by Thomson Reuters to post sales of $65.0 million in 2014 and $116.3 million in 2015. Note that the consensus estimate is based on only two analysts’ forecasts. Is it conceivable that Plug Power’s 2014 revenues will be 144% higher than 2013 revenues — and that 2015 revenues will rise another 79%? That is what the consensus estimates say, so that is what we’ll use, but a word to the wise here.

Estimated growth drops by nearly half between 2014 and 2015, so we’ll use a still-generous growth estimate of 55% for 2016, yielding a sales estimate for 2016 of $180.3 million. If Plug Power hits that proposed 2016 sales target, then the company’s market cap at a 10-times valuation would be $1.8 billion. And based on 103.5 million shares currently outstanding, the share price would be near $17.50. Then again, at a much more conservative four-times forward revenue valuation, the share price would be around $7.00 a share.

Again, at FuelCell Energy the story is much the same. Sales in 2013 totaled $187.66 million and are forecast to reach $204.3 million this year and $249.35 million next year. Growth is forecast to rise nearly 9% this year and 22% year-over-year in 2015. Only four analysts contributed to these estimates. Again, using a generous estimate of 15% revenue growth in 2016, sales would rise to $289.25 million in 2016. At a 10-times valuation, FuelCell’s market cap would be $2.89 billion, and with the same 253.9 million shares outstanding, the share price would be around $11.40. At a four-times valuation, shares would be worth about $3.40.

At a four-times valuation, both companies’ stock would trade about $1 higher than they do today. At a 10-times valuation, both Plug Power’s and FuelCell Energy’s shares would be valued at about 180% of today’s share price.

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