What happened

Hydrogen fuel cell stock Plug Power (NASDAQ:PLUG) dropped another 5.6% in early trading on the Nasdaq Stock Market Tuesday, and is still down 3.8% as of 10:30 a.m. EDT. The stock is probably still reacting to the sudden restart of coverage -- at a lower rating of equal weight -- by Morgan Stanley that torpedoed shares of not only Plug, but also FuelCell Energy and Bloom Energy yesterday.

And now we know more about why that happened.

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

According to a copy of Morgan Stanley's note, via TipRanks, in addition to the factors we already mentioned (worries that Plug stock has only "modest stock price upside" at its current valuation), we now know that Morgan Stanley has other concerns about Plug stock as well.

Among these worries, the analyst notes:  

  • "Multiple aggressive competitors" have entered the hydrogen space, and especially the upstream market for producing hydrogen gas through electrolysis -- arguably the keystone underlying Plug's new business model.
  • So many new producers of hydrogen may give rise to "overexpansion of manufacturing and hydrogen supply," diminishing Plug's pricing power and postponing profitability.
  • And there's even a risk of "further accounting restatements" such as the one that sent Plug stock plummeting last month.

Now what

And that's not all. While Morgan Stanley listed several "risks" to Plug's business, the scenario it lays out for how Plug will overcome these risks is arguably of even greater concern. Specifically, according to Morgan Stanley, in order for Plug to merit even its current equal weight rating and $35 price target, it's going to be necessary for Plug to grow its business to $1.7 billion in size by 2024 (Plug's current trailing-12-month revenue is negative $100 million), then grow 23% annually from 2025 through 2030, 14% annually from 2030 to 2040, and 9% annually from 2040 to 2050.

And Morgan Stanley needs to see Plug reduce its operating costs by more than 10% annually over at least the next 15 years. Judging from today's price action, investors have their doubts that Plug Power will manage to accomplish all of the above -- and that's why they're selling today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.