With Plug Power Inc. (NASDAQ:PLUG) It Looks Like You'll Get What You Pay For

Plug Power Inc.'s (NASDAQ:PLUG) price-to-sales (or "P/S") ratio of 3.4x may not look like an appealing investment opportunity when you consider close to half the companies in the Electrical industry in the United States have P/S ratios below 1.9x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Plug Power

How Has Plug Power Performed Recently?

Plug Power hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Plug Power will help you uncover what's on the horizon.

How Is Plug Power's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Plug Power's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Turning to the outlook, the next three years should generate growth of 37% per annum as estimated by the analysts watching the company. With the industry only predicted to deliver 26% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Plug Power is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Plug Power maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Plug Power (1 is concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Plug Power, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.