Problems I’ve been experiencing Power plug (NASDAQ: PLUG) The company continued to post poor results in the second quarter of the year, with the stock losing about 80% of its value over the past year.
Let’s take a closer look at the issues the company is facing and whether it has a chance to turn around.
Plug Power Problems
Plug Power’s biggest problems are negative gross margins and cash outflows. The company has found a niche selling fuel cells used in forklifts and other material-handling equipment to large warehouses. However, in conjunction with those deals, it has long been selling the hydrogen fuel needed to power those devices at a loss.
That trend continued in the fourth quarter, when the company reported a total loss of $131.3 million. That was worse than the $78.1 million total loss it reported a year earlier, but an improvement from the $159.1 million total loss it reported in the first quarter.
For the second time this year, in addition to negative overall fuel margins, it also had negative equipment margins. Gross MarginsOn the other hand, negative fuel margins have seen some improvement as a result of the green hydrogen production facilities built by the company.
Building hydrogen production plants to fuel its customers is a big part of its plan to try to achieve positive fuel margins. Increased production from its Georgia facility, along with some price increases, has helped drive the improvement. Meanwhile, the company expects a new hydrogen plant it is building in Louisiana in a joint venture with First It will start producing hydrogen in the fourth quarter.
As the company sold its equipment and fuel at prices below its cost of production, Plug Power continued to incur losses and burn through cash. In the quarter, the company reported a loss of $262.3 million, or $0.36 per share. At the same time, it had operating revenue of $1.2 billion. cash outflow It amounted to $254.7 million, while the company’s free cash flow amounted to negative $350 million.
Looking at Plug Power’s balance sheet, the company has $214 million in debt versus $62.4 million in cash. It also has $956.6 million in restricted cash. The restricted cash comes largely from prior sale/leaseback agreements that will be issued during the lease term and, to a lesser extent, letters of credit backed by security deposits.
With a cash crunch on the company’s balance sheet, the company aggressively sold its shares to help fund its operations and continue building hydrogen plants. In the quarter, the company received net proceeds of $266.8 million from stock sales and $572.1 million in the first half of the year.
To put Plug Power’s cash burn and stock raise into perspective, the company has a market cap of only about $1.8 billion based on its most recent stock count.
Can Plug Power problems be solved?
It’s possible the company can fix its problems, but the odds of that happening are getting smaller and smaller. First, its core fuel cell business has been underperforming. With all of Plug Power’s problems, it’s almost easy to overlook the fact that its equipment sales fell about 65% year over year in the second quarter, and that was while it was selling at a loss. But even as it was selling more equipment last year, its overall equipment profit margins were still just above 13%.
The company is awaiting a potential $1.66 billion low-interest loan from the Department of Energy to help finance the rest of the hydrogen plant’s construction, though the loan has been challenged by U.S. Sen. John Barrasso (R-Wyoming), a ranking member of the Senate Energy and Natural Resources Committee. Without the loan, the company may struggle to find additional financing given the current state of its business.
Meanwhile, while hydrogen’s gross margins have improved, the prospects of fuel sales becoming a strong profit driver seem unlikely. Breaking even on fuel margins is an achievement, but that alone won’t solve the company’s problems.
It’s worth noting that if Plug Power can grow its business to $1.5 billion in annual revenue with a 25% gross margin, its $375 million net profit won’t cover the $400 million in operating expenses it’s planning for this year. The company is projecting revenue of between $825 million and $925 million this year. That shows how far the company is from profitability. In the meantime, Plug Power will continue to dilute shareholders and burn cash as it attempts to turnaround.
Despite some bright spots, such as improved hydrogen fuel margins and electrolyzer sales, the company still has a long way to go. As such, I would advise staying away from the stock for now.
Should you invest $1,000 in Plug Power now?
Before you buy shares in Plug Power, keep the following in mind:
the Motley Fool Stock Advisor The team of analysts has just identified what they believe to be Top 10 Stocks There are 10 stocks for investors to buy right now… and Plug Power wasn’t one of them. The 10 stocks that made the list could deliver massive returns in the years ahead.
Think about when Nvidia I made this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $641,864.!*
Stock Advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Stock Advisor The service has More than four times S&P 500 Index Return Since 2002*.
*Stock Advisor returns as of August 12, 2024
Jeffrey Seller He has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has Disclosure Policy.
Plug Power’s troubles continue. Should investors dump the company’s stock? Originally posted by The Motley Fool
Comments are closed, but trackbacks and pingbacks are open.