The stock's gains have been fueled by a combination of its own business momentum, investors' appetite for alternative energy stocks, and enthusiasm about the incoming Biden Administration's energy plan. Plug's primary business is making hydrogen-powered forklifts. This has been remarkably successful and has demonstrated the effectiveness of hydrogen fuel as its forklifts have more charging capacity and more power than electric or gas-powered forklifts. They are also complimentary of many companies' determination to reduce emissions.
However, the company's gains in 2020 were due to excitement that the company would be able to use its hydrogen fuel cell technology and apply it to adjacent areas like commercial transportation, powering data centers, and supplementing the power grid. These are all much larger markets than forklifts which is a relatively small market that can't justify Plug's current valuation of $24 billion.
Investors' optimism about Plug's prospects was somewhat validated by the South Korean conglomerate SK Group's $1.5 billion in the company. This resulted in the stock jumping nearly 40% on Thursday and then rallying another 10% the following day. The joint venture's intent is for Plug to manufacture hydrogen fuel-cell systems, fueling stations and electrolyzers in South Korea. SK Group will receive 51.4 million shares of Plug Power for $29.29.
If hydrogen fuel becomes a legitimate fuel source and Plug can be one of the leading companies, then its stock has much more upside. However, if it can't make this transition, then its stock is extremely overvalued. So, the news is a validation of sorts for investors who believe in the company's long-term vision.
Hydrogen fuel is produced from natural gas. Its cost of production has declined due to the falling cost of solar and wind energy which means that it produces much fewer emissions than fossil fuels and even electric vehicles. Many believe that hydrogen fuel is a much cleaner and more powerful energy source than EVs for transportation.
Another positive development for Plug Power is the Democrats winning both Senate races in Georgia. If Republicans retained control of the Senate, they could have blocked a floor vote on Biden's energy plan. Any plan passing would likely have to be severely watered down.
Biden's energy plan proposes $2 trillion in spending over four years. It proposes generous tax credits for companies who choose to buy green products that would benefit Plug. It also proposes to invest in an "energy infrastructure" which could make hydrogen-powered vehicles more viable since the lack of charging infrastructure makes them less practical for many companies.
However, investors have to grapple with how much of this is priced into the stock. Although it can be tempting to chase given its impressive performance, investors should remain patient and wait for a correction to buy shares.