In this article, I have evaluated industrial stocks, Plug Power Inc. (PLUG) and Hitachi, Ltd. (HTHIY), to predict which is the right pick. After thoroughly evaluating these stocks, I think that HTHIY might be a superior choice for the reasons discussed in this article.
The integration of advanced technologies, such as the Internet of Things (IoT), artificial intelligence, big data analytics and automation, is revolutionizing industrial machinery. Industry 4.0 concepts are driving the development of smart factories, where machines, processes and systems are interconnected and communicate in real-time.
Hence, the industrial machinery market is expected to grow at a CAGR of 6% until 2032.
Furthermore, in December, industrial production surged by 0.1%, while manufacturing output experienced a marginal 0.1% uptick. Total industrial production for December, standing at 102.5% of its 2017 baseline, surpassed its year-ago level by 1%. Furthermore, capacity utilization remained unchanged at 78.65 in December, aligning precisely with its historical average.
Moreover, HTHIY is a clear winner in terms of price performance, as PLUG has declined 63.2% over the past six months as compared to HTHIY’s 19.5% gain. Also, PLUG declined 73.4% over the past year compared to HTHIY’s 49.1% gain.
Here are the reasons why I think HTHIY might perform better in the near term:
Recent Developments
On February 2, 2024, PLUG had signed a contract to deliver a Basic Engineering and Design Package (BEDP) for a 500 megawatt (MW) electrolyzer project in Europe. The contract, signed on January 29, 2024, increases PLUG’s total amount of BEDP contracts to 4.1 gigawatts (GW).
On the contrary, on January 31, 2024, HTHIY’s subsidiary Hitachi Vantara, announced the next evolution of its partnership with Cisco (CSCO), introducing an innovative suite of hybrid cloud services designed to address ongoing data management challenges faced by modern enterprises.
The joint offering, Hitachi EverFlex with Cisco Powered Hybrid Cloud, is unique because it integrates automation solutions and predictive analytics to give organizations a future-proof portfolio for advanced infrastructure management, cost efficiency, and operational effectiveness.
Recent Financial Results
For the third quarter that ended September 30, 2023, PLUG’s gross loss worsened 199.5% year-over-year to $137.97 million. Its operating loss widened 71.5% from the year-ago value to $273.97 million. Also, the company’s net loss and net loss per share worsened by 66% and 56.7% year-over-year to $283.48 million and $0.47, respectively.
On the contrary, HTHIY’s revenues amounted to ¥4.96 trillion ($33.83 billion) for the six months that ended September 30, 2023. The company’s adjusted operating income grew marginally from the previous- year period to ¥325.40 billion ($2.22 billion). Its total adjusted EBITA came in at ¥400.90 billion ($2.73 billion), up 2% year-over-year.
Also, the company’s net income increased 15.7% year-over-year to ¥232.30 billion ($1.58 billion), and the earnings per share attributable to HTHIY stockholders came in at ¥233.88, up 30.6% from the prior-year period.
Past And Expected Financial Performance
Over the past three years, PLUG’s revenue grew at a CAGR of 42.5%. Its revenue is expected to increase 27.6% in the year ended December 2023 but declined 8.1% in the fourth quarter ended December 2023. Its EPS is expected to decline 28.9% in the year ended December 2023, and 6.1% in the fourth quarter ended December 2023.
Conversely, HTHIY’s revenue has increased at a CAGR of 5.9% over the past three years. Analysts expect HTHIY’s revenue to grow by 429.3% in the year ending March 2024.
Valuation
PLUG’s forward P/S multiple of 3.18 is higher than HTHIY’s 1.16. Additionally, PLUG’s forward EV/Sales multiple of 3.63 is higher than HTHIY’s 1.24.
Thus, HTHIY is more affordable.
Profitability
PLUG's trailing-12-month gross profit margin of negative 32.84% is lower than HTHIY’s 25.69%. In addition, PLUG’s trailing-12-month EBIT margin of negative 99.90% is lower than HTHIY’s 10.87%.
Thus, HTHIY is more profitable.
POWR Ratings
PLUG has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, HTHIY has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PLUG has an F in Sentiment in sync with its unfavorable analyst estimates. In contrast, HTHIY has a B grade for Sentiment consistent with favorable analyst estimates.
Moreover, PLUG has a D grade in Value. Its forward EV/Sales of 3.65x is 103.5% higher than the industry average of 1.80x. Its forward P/S multiple of 3.18 is 120.6% higher than the industry average of 1.44x.
In contrast, HTHIY has a B grade for Value. HTHIY’s forward EV/Sales of 1.24x is 30.4% lower than the industry average of 1.78x. Its forward P/S multiple of 1.16 is 19.6% lower than the industry average of 1.44.
Among the 91 stocks in the Industrial - Equipment industry, PLUG is ranked #90, while HTHIY is ranked #12.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Quality, and Stability. Get all PLUG ratings here. Click here to view HTHIY ratings.
The Winner
The industrial market has been growing steadily over the years, driven by the demand for automation and the modernization of production processes. Industry players such as PLUG and HTHIY are well-positioned to benefit from these industry tailwinds.
However, PLUG's poor profitability and elevated valuation makes its competitor HTHIY the better buy.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Equipment industry here.
What To Do Next?
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HTHIY shares were trading at $161.36 per share on Friday afternoon, up $0.24 (+0.15%). Year-to-date, HTHIY has gained 11.61%, versus a 3.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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