Is Plug Power's Stock Overvalued Or Undervalued?

Plug Power Inc PLUG shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 18%.

Plug’s stock has had a wild ride in 2021, but investors may be wondering whether there’s any value to be found in Plug shares.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 29, nearly double its long-term average of 15.9. Plug doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Plug reported a $99.6 million net loss.

Related Link: Is Palantir Technologies Stock Overvalued Or Undervalued?

Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.6. Unfortunately, analysts are not expecting Plug to turn a profit over the next four quarters. The current consensus earnings per share estimate for Plug for 2022 is a per-share loss of 21 cents. Plug’s industrial sector peers are currently averaging a 21.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 0.9. Once again, without positive earnings, Plug doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.15, well above its long-term average of 1.62. Plug’s PS ratio is 34.8, more than 10 times the S&P 500 average. Plug's PS ratio is also up 1,100% over the past five years, suggesting the stock is priced at the high end of its historical valuation range.

Finally, Wall Street analysts see little value in Plug stock over the next 12 months. The average analyst price target among the 24 analysts covering Plug is $42, suggesting about 4.1% upside from current levels.

The Verdict: At today's price, Plug stock appears to be extremely overvalued based on a sampling of common fundamental valuation metrics.