Mark Asks a Question about Plug Power

Mr. Bigger

I have been reading/following your blog for about 6 months and enjoy its
content.  My question involves what you believe to be PLUGs potential price
targets if their funding as well as other developments go positively.  You have
given ideas of where you think stocks like CROX and APP could eventually go and
where you'd be a seller, my question is what do you think this 'option' in PLUG
could potentially return?  Also, I have noticed via your disclaimers that you
have been building a position and am curious where/when you started buying?

The way we look at Plug Power ($PLUG) is that in the short term its success depends on securing a $10 million equity round of funding and generating more sales so that the company can reach EBITDA break even in 2014. We started buying $PLUG after the Air Liquide deal was announced. We added a lot more when we visited the company shortly thereafter. We realized then that we would be incapable of building a $PLUG operation from scratch even if you gave us $200 million. On average, the price we paid is very close to the strike of the Air Liquide deal. 

If the market detects that this next $10 million in equity financing is about to happen, there are reasons to believe that $PLUG stock price could reach $1. Some investors might look at a move to $1 as a price target to exit the stock. I think it could actually be a good entry point.

At a price of $1 with sufficient capitalization, the market will start to focus on the company and its potential. Once people look at $PLUG they will begin to see the tremendous opportunity this company has. Investors will start to look at the company, the market it is in, it's competitive advantages versus traditional lead acid batteries and other alternative providers.  Investors and research analysts will begin to look at $PLUG's impressive, growing list of Fortune 500 clients. Walmart ($WMT), a Plug customer, has 158 distribution centers in the USA. Assuming each distribution center has 75 forklifts in operation, the Walmart total opportunity for $PLUG is about $175 million. Investors will start to ask more questions about the $20 billion addressable material handling market the company can exploit with its current product line, and the size of the adjacent markets $PLUG could potentially exploit over the long run.

If all of this happens, there is no upside in setting a price target for the company. Our strategy is to track the performance of the company in relation to our operating benchmark over the long term. Short-term our plan is to sit tight and do nothing.

American Apparel ($APP) and Crocs ($CROX) are different in the sense that our thesis for these two stocks have been based on earnings power. Yes, we have an idea of the value of both companies in relations to their earnings power but it does not mean we would sell at these levels. The price target gives you a beacon when you make an investment that you feel the company is worth substantially more than your purchase price. An actual selling strategy depends on our assessment of the growth story at that point.

Does that make sense?

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family hold about 3% of Plug Power. We intend to increase our position if the company's results confirm our thesis through time. 

Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. We have been wrong on many of our thesis before.  Please do your own research before investing.

We also have substantial positions in $APP and $CROX.  Please see our more detailed investment thesis for each company and do your own research prior to investing in either of those companies.

Written by Michael Bigger. Follow me on Twitter and StockTwits.