Power delivery (NASDAQ: Delivery) It has lost about 99% of its value since its initial public offering in 1999. The hydrogen fuel cell maker was once considered a promising green energy company, but ran out of steam as its growth slowed and posted heavy losses. The dot-com collapse and some accounting problems from 2018 to 2020 exacerbated its decline.
But with its shares trading at around $2, Plug Power’s… Enterprise value The company’s $2.6 billion valuation is only double next year’s estimated sales. Analysts also still have an average price target of $4 per share. Should you buy this unpopular stock and expect it to double over the next few years?
Why did Plug Power stock collapse?
When Plug Power went public, it initially planned to develop hydrogen-powered residential systems. But that idea never worked for two reasons: hydrogen costs more to produce than oil or natural gas, and it was more cost-effective to expand existing electrical grids than to build new hydrogen-powered infrastructure.
Plug Power eventually abandoned that ambitious plan and centered towards A new niche market for selling fuel cells and charging services for forklifts in warehouses and fulfillment centers. It has already deployed more than 69,000 fuel cell systems and 250 fueling stations worldwide, and is now the largest single buyer of liquid hydrogen in the world.
I gained that core business Amazon and Walmart As a major customer, Plug Power has subsidized its fuel cell sales to those two retailers that have stock warrants — or options to buy more of its shares at a discount. The unusual arrangement turned Amazon and Walmart into the largest investors in Plug, but it then restated all of its financial statements from 2018 to 2020 because it did not properly disclose how those incentives temporarily overridden its customers’ payments.
After these recalculations, Plug Power’s reported revenues actually turned around negative in 2020. Its revenues turned positive again in 2021, but its growth slowed over the next two and a half years as its operating and net losses widened:
|
metric |
2021 |
2022 |
2023 |
1H 2024 |
|---|---|---|---|---|
|
profit |
$502 million |
$701 million |
$891 million |
$264 million |
|
Operating margin |
(87%) |
(97%) |
(151%) |
(191%) |
|
Net income (loss) |
($460 million) |
($724 million) |
($1.37 billion) |
($558 million) |
Data source: power connection.
Furthermore, most of Plug Power’s revenue growth from 2021 to 2023 was driven by two large acquisitions that expanded its refrigerated equipment unit. This inorganic growth has masked the weakness of its core hydrogen fuel cell business, which has suffered due to macro headwinds that have reduced market demand for expensive new hydrogen projects. The costs of integrating those companies also crushed their operating margins.
For the full year, analysts expect Plug Power’s revenue to decline 6% to $837 million as it narrows its net loss slightly to $914 million. This seems like a bleak situation for a company that ended its most recent quarter with just $62 million of unrestricted cash and equivalents. It has also increased its outstanding stock count by more than 400% over the past decade through secondary stock offerings and stock-based compensation.
But don’t ignore potential triggers
It’s easy to see why Plug’s stock has collapsed, but insiders actually bought seven times as many shares as they sold over the past 12 months. Norges Bank, Norway’s central bank, recently increased its stake in the company to nearly 8%.
The Federal Reserve also recently lowered its benchmark interest rate for the first time in four years. If it continues to lower these rates over the next year, Plug’s business could stabilize and grow as its customers focus on hydrogen upgrades again.
Perhaps that’s why the US Department of Energy recently gave Plug Power a new $1.66 billion loan guarantee to build up to six new green hydrogen energy production facilities. This lifeline would prevent Plug from going bankrupt, but taking full advantage of the loan would also nearly double its current debt-to-equity ratio to 1.2.
To stabilize its near-term liquidity, Plug Power recently sold some of its equipment to Antin Infrastructure Partners’ GTL Leasing for $44 million and leased it back. This deal could help it tread water and avoid taking on too much debt.
Should you buy Plug Power stock now?
Assuming a recovery in the hydrogen market, analysts expect Plug’s revenue to rise 82% to $1.3 billion in 2025 and grow 41% to $1.8 billion in 2026. They also expect its net losses to narrow to $477 million in 2025 and $331 million in 2026.
But we should be skeptical of these predictions, since Plug has been telling the same “wait and see” story for 25 years now. Some green shoots are emerging, but I wouldn’t rush into buying the stock and expect it to bounce back to $4 any time soon.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Liu Sun He has jobs at Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has Disclosure policy.
Should You Buy Plug Power Stock When It’s Under $4? Originally published by The Motley Fool