Plug Power a Free Option?

We all know that Plug Power ($PLUG) is a highly distressed situation. What is little known though is that $PLUG at current level might be as closed to a free options as I have ever seen in my life. A free options on the adjacent possible of hydrogen that is now becoming reality.

A month ago, Air Liquide, an hydrogen supplier, invested in $PLUG at about $.25 via a convertible preferred. Air Liquide's motivation is quite simple after you read this article.

The conversion of just 10% of the worldwide fleet of forklift trucks would represent

a potential hydrogen market of €7 billion.

1. The Adjacent Possible Market

That is correct....a €7 billion market. At 20% conversion rate it is a €14 billion market right? So the hydrogen suppliers such as Linde (Germany) and Praxair (USA) have a big vested interest in seing $PLUG thrive.

Check this video out to understand why the technology resonates and focus on the name of the hydrogen supplier on the hydrogen tank.

2. The Free Option

It is pretty obvious to us that PLUG will get the capital infusion of $10 million that it needs to reach EBITDA breakeven (we have been wrong before on our assumptions). Air Liquide, Linde and Praxair have too much at stake to let $PLUG disappear. Remember the €7+ billion market? Remember the Linde H tank at the BMW facility in South Carolina? Other investors could be interested in such an important strategic asset. I know I am, but you gotta discount the fact that I am a bit crazy. I wish management would do a better job of communicating the importance of PLUG to the investors community. I guess after 15 years of meandering, no one cares about the company.

If you only focus on the financials of PLUG you are missing the whole story. In our opinion, this economic asset will get funded and it will thrive.

 To the man with a hammer, the world looks like a nail -Charlie Munger

We believe it would cost more than $200 million to build another PLUG from scratch. Even if you assume we are wrong and you use a $100 million figure, the situation is grossly misunderstood.

In my opinion, our biggest risk here is to be taken out of our position at a ridiculously low price.

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.

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

American Apparel 325

I just got this email from a friend who lives in Montreal:  I am watching Tele-Quebec and they are interviewing Dov Charney and they are discussing American Apparel. Interesting brand!

 

Recently, Charney has been very active in the media, discussing reforming the garment industry following the disaster in Bangladesh. Check out the Vice interview here.

 

I expect Charney to press hard on the public relations pedal this year. Charney owns a significant amount of options struck at $3.25 expiring in April of 2014. Management is clearly interested in having the stock reach this level before the options expire.

 

I do believe that two more catalysts will push the stock to that level before the options expire. The new distribution center will allow the company to reduce its inventory by about $30 million by the end of 2013. With a better looking balance sheet, The turnaround thesis will become obvious to the Street. 

 

In addition, comps are accelerating and the company will most likely surprise to the upside for the rest of the year.

 

The company has performed above our expectation and we have added to our long position last week. The story is evolving from a distressed situation to a growth story. The growth story will become evident in 2014, as we expect the company to start expanding its global franchise. 

 

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

More Information Supporting our Plug Power Thesis

I came across these two articles posted on Stocktwits. Big thank you to the people who posted them. This is great information if you are interested in our Plug Power ($PLUG) thesis.

http://www.energyandcapital.com/articles/the-fuel-cell-is-back/3435

http://www.airliquide.com/en/rss/first-hydrogen-filling-station-for-forklift-trucks-in-france-for-ikea.html

Enjoy and let us know what you think.

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

The Essence of a Brand: American Apparel

I love trying to figure out the mind of the customers of the consummer brands I own. Here is a cool video produced by @fashionbylani. She discusses her most recent collective haul, the results of a shopping trip at many clothing retailers.

At about 3 minutes and 17 seconds in the video, she discusses American Apparel ($APP). Check it out:

How customers think about a brand helps me understand the essence of a brand. That is what I invest in. Thank you Lani.

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

The Ugliness of Price Targets

Some have been asking me about our Plug Power ($PLUG) price target. My view about it is that you should get involved with something that has so much potential as to render the exercise of computing it irrelevant.

It's not easy because these opportunities are rare. With Plug Power ($PLUG) we have said that we would be incapable of building the business if you gave us $200mm. Some might be able to do it with $100mm but from our vantage point, we think it can't be done. We will be monitoring how the situation evolves but won't commit to a firm target.

A while back, I wrote the post A Thousandfold Return on Investment about my friend who bought McDonald's ($MCD) in 1965. Can you imagine the results he would have achieved if he had focused on a price target and a discipline of selling the stock if it reached the target?

My friend is still holding the stock to this day and when we talk about the company, I never hear him talk about a price target.

Do price targets force investors to think small?

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

Plug Power Investment Thesis

This is how we think about Plug Power ($PLUG). Most of the descriptive material has been sourced at plugpower.com.  

$PLUG is a company with real business products, revenues, and customer relationships.  In addition, $PLUG is a technology company with huge potential future applications.  While cash is an issue near-term, the revenues and growth are real and tangible.  The current price looks cheap even for the revenue stream, and if you assign any value to the potential future applications, the stock looks like a great deal.

 1. The Business

Plug Power is the Premier system integrator in rapidly emerging Proton Exchange Membrane (PEM) based fuel cell market.  PEM fuel cells use hydrogen to produce energy in a clean manner, with water and heat the only emissions.  Potential PEM fuel cell applications are broad, and could one day power cars and trucks.  However, without infrastructure in place (hydrogen fueling stations), it is not yet a viable fuel for today's cars and trucks.

In the meantime, Plug Power has developed a commercial application for PEM fuel cells that is viable today.  Forklifts in our nations warehouses and distribution centers use power constantly to move merchandise and load trucks.  Most forklifts are powered by batteries, but Plug Power has created a PEM power alternative called GenDrive.  Plug Power customers buy GenDrive to increase productivity, to lower costs, to implement green solutions, and for increased performance.  Refueling stations within the distribution centers allow the trucks to minimize downtime and cut costs.  $PLUG has to date deployed approximately 4,000 GenDrive units to some of the largest companies in the nation.  

2. The Market

The company has a current addressable market of $4.0 billion in the U.S.A. and $4.0 billion in Europe, just in forklift truck applications. The company's solution provides about 95% of the hydrogen powered forklift trucks in the USA annually. PLUG is the dominant player in this market.

In addition, the company is working on potential new applications that could come online in the next few years.

3. The Strategy

Plug Power is focused on the fork lift market because it is a market they can make money at it NOW. PLUG's intention is to conquer new markets horizontally, as new markets emerge for PEM based power solution. For example, in early 2014 Plug will be demonstrating 15 ground support units (flat trucks pulling containers on a tarmac) powered by fuel cell with Federal Express at the facility in Memphis. There are over 1,300 of these units at the Federal Express's Memphis facility alone. This strategy allows the company to grow horizontally into new markets with minimal capital expenditures.

 4. Clients

Here is a list of some of PLUG's customers. 

5. The Model

The company expects to be EBITDA breakeven around mid 2014 on an annual run rate of $55 million in revenues.

The cost of good sold are expected to be at 67% of revenues and SG&A at 12% to 15% (minimum of $12.5 million). The cost of good sold could be as low as 55% in our estimate.

The company had $26.1 million of revenues in 2012 and grew unit sold from 1,024 in 2011 to 1,391 in 2012, an increase of 36%.

The company needs an additonal $5 to $10 million of funding to get to EBITDA breakeven.

The company's current manufacturing capacity is $200mm.

6. What went wrong?

The company has had its fair share of problems over a span of fifteen years. The situation has been going to zero fast. Investors have been attracted to this situation based on the promise of its technology but each time the company has been nearing the finish line, it has been pushed back.

In February 2013, the company raised money and the stock plunged on a botched financing attempt. The stock dropped to $.12.

The lead batteries manufacturers used this situation to point out to PLUG's customers that the company was toast.

Customers decided to pull out their orders and demand for GenDrive dried up.

7. Catalyst.

On May 8, Air Liquide came to the rescue and invested $6.5 million in PLUG. We view the Air Liquide investment as the catalyst needed to reassure customers and bring back PLUG to its recent success track.  The strategic investment from the worldwide producer of liquid hydrogen restored customer confidence in Plug.

Plug Power is currently trading at a market capitalization of $13 million. Never in my life have I seen a company with such a proven technology, a customer list that includes the best and biggest companies in the world, with an addressable market that will easily surpass $10 billion in 5 years from now, and with a dominant position in the emerging power business. If you gave me $200 million, I could not build a Plug Power.

Let us know what you think.

Additional posts we wrote about Plug Power: Plug Power Ignition and The Boulevard of Broken Dreams.

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 track our benchmark.

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. 

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

and by Jennifer Galperin.  Follow me on Twitter and StockTwits.

Were You Depressed Then, and Dancing Now?

Were you investment depressed when Sterling Partners executed on this deal in 2009? They invested in Select Comfort ($SCSS) at below a dollar. Are you investment dancing now? If so, have a ton of fun.

"As long as the music is playing, you've got to get up and dance. We're still dancing."

Chuck Prince, July 2007

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

Plug Power Ignition

A few days ago we wrote The Boulevard of Broken Dreams, a blog post about Plug Power ($PLUG) in which we said:

We look at $PLUG as an options on the modern fuel cell technology. Buying $PLUG buys you convexity on this market but the underlying payoff has also some convexity to the upside because of the impact of reflexivity (Soros) between the stock price and the business.

This situation has tremendous potential energy to the upside. Some will be disappointed that we are not pulling out a 180 pages Ackman presentation about this situation. Doing this would be intellectually dishonest. When dealing with the adjacent possible....We just don't know.

But we know this about this situation. We know that in order to rocket launch and transform this potential energy into kinetic energy, we need an ignition, a catalyst. If Plug Power ignites, this situation will reverse the downward trend and start trending the other way in a massive way. 

We believe the catalyst resides in having one of $PLUG top customers extend the GenDrive solution from location one to location two.  Here is what Plug CEO said during the latest earnings conference call:

We are also quite excited to announce that the Wal-Mart Washington Courthouse Ohio Distribution Center completed deployment of over 250 GenDrive units powering their forklift truck fleet and have removed their battery room. 3 or 4 of our largest customers discussing multiple distribution centers, up to 5 in some case, where they're looking to migrate to fuel cells, where they're working through their expansion plans internally. (Source www.seekingalpha.com)

We find it interesting that Wal-Mart($WMT) has eliminated its battery room. If this was an experiment, it would have most likely kept its battery room at this facility. Wal-Mart has 158 distribution centers in the USA. You do the math ;-). If $WMT decides to implement the GenDrive solution to a second distribution center, Plug Power will have made a reality of the adjacent possible. 

Makes sense right? But actually, WMT has implemented the technology in 3 distribution centers already. Check out this press release issued by Ballard Power System ($BLDP). Could it be that the market is not paying attention? What is the value of the Wal-Mart potential future business?

The pent-up customer demand is visible to the team at Plug Power. (PLUG CEO comments, transript www.seekingalpha.com)

No kidding!

But this is not only about $WMT, it also about Fedex ($FDX), Procter & Gamble ($PG), Sysco ($SYY), Coca-Cola ($KO), Mercedes Benz.....

Let us know what you think.

Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family are large holders of $PLUG stock.

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. 

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

The Boulevard of Broken Dreams: Plug Power

In finance, the image located below represents the Boulevard of Broken Dreams: Dreams about a massive technological adjacent possible with unlimited potential opportunities that never becomes reality. This is the sad story of Plug Power ($PLUG) in one image. 

Plug Power is an architect of modern fuel cell technology. Plug Power is revolutionizing the industry with cost-effective power solutions that increase productivity, lower operating costs and reduce carbon footprints. Long-standing relationships with industry leaders forged the path for Plug Power’s key accounts, including Walmart, Sysco, P&G and Mercedes. With more than 3,000 GenDrive units deployed to material handling customers, accumulating over 8.5 million hours of runtime, Plug Power manufactures tomorrow’s incumbent power solutions today. (Source: Plug Power website)

The company has had its fair share of problems over a span of fifteen years. The situation has been going to zero fast. Investors have been attracted to this situation based on the promise of its technology. Most have left poorer the Boulevard of Broken Dreams.

We look at $PLUG as an options on the modern fuel cell technology. Buying $PLUG buys you convexity on this market but the underlying payoff has also some convexity to the upside because of the impact of reflexivity (Soros) between the stock price and the business.

This situation has tremendous potential energy to the upside. Some will be disappointed that we are not pulling out a 180 pages Ackman presentation about this situation. Doing this would be intellectually dishonest. When dealing with the adjacent possible....We just don't know.

Management has stated they they will be EBITDA breakeven at around mid 2014 on a quarterly revenue run rate of $13.50 mm. They are doing about half of this at the current moment. The company can accomodate $200mm of business with its current facilities.

The downside is zero with a walk of shame along the Boulevard of Broken Dreams.

A few facts are favoring a positive outcome: 

1. Air Liquide, one of the largest industrial companies in the world, invested $6.5 million in $PLUG on May 8. This investment was strategic in nature.
2. Andrew Walsh, $PLUG's CEO, stated the following in the recent earnings conference call: 

The pent-up customer demand is visible to the team at Plug Power. That is why during the past 5 months, the toughest in the company's history, we have not lost the design or sales employee, except for extraordinary personal reasons, because they recognize how close we are to success. I perceive this also, and in the near future, path to success will be visible to shareholders, new investors and especially our competition. I know many will be surprised, but not us. We're building the business every day. 

The next 120 days are critical to our sales effort. I expect order flow of over $20 million in that time frame, but also, we will be seeing business steps by some customers to position large orders before year's end. (Source: www.seekingalpha.com)

We speculate that these large orders before year's end will be the catalyst moving the stock higher.

We have a long speculative position in $PLUG. We will be increasing this position if $PLUG's results confirm the company's performance benchmark.

If you want to learn more about this situation you should read the earnings conference call transcript. And don't forget to let us know what you think.

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

P.S. 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.

American Apparel Doing the Impossible

I admire American Apparel's determination. Talk about doing the impossible, doing the stuff that can't be done. They are crazy and I love it! and they will get it done...

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