After years and years of slow growth, many investors in 2020 seemed to conclude that the fuel cells and hydrogen economy had reached an inflection point. As large companies announced their support for fuel cells and hydrogen, fuel cell stock prices soared.
But that enthusiasm has cooled off considerably in 2021. Plug Power (PLUG 12.28%), in particular, has suffered. While the shares seemed pricey in 2021, over the past three months, they plummeted by more than 61% while the S&P 500 has risen by more than 6%. Does this represent an opportune time to buy Plug Power's stock, or is the sell-off a signal that something's amiss and investors should stay away?
Good news gets investors going, but bad news makes them bail
After soaring into the stratosphere in 2020, Plug Power began 2021 on an auspicious note. Shares rose by nearly 90% in January after investors learned of a $1.5 billion investment in the company which suggested that the company would have sufficient capital to execute its growth plans. But then the other shoe dropped.
In February, investors discovered that competition in hydrogen production was increasing thanks to a collaboration between Siemens and Air Liquide, two industrial sector powerhouses. Additionally, the company's uninspiring fourth-quarter earnings report did little to stoke investors' enthusiasm.
Instead of lions and lambs, it was bears that were most prominent in March. The stock continued to fall after management announced plans to restate years of financial statements, including annual reports for 2018 and 2019 as well as quarterly filings for 2019 and 2020. The stock's decline extended into April, taking a particularly notable hit on news of a $200 million investment that the company was making to spur the growth of hydrogen projects. But pessimism emanating from Wall Street also played a significant role. After tripling from where they stood six months ago, the shares are now back to about where they were before that surge.
Don't forget the fundamentals
After Plug Power's precipitous decline, it's no wonder that investors who are bullish on the long-term prospects of fuel cells and hydrogen solutions are strongly considering opening -- or adding to -- a position in the company. News items and analyst downgrades may be valid points to consider, but more fundamental are the company's financials.
And in the case of Plug Power, those are a cause for serious concern.
Granted, the company has excelled at securing potent partnerships and making headway in fostering the adoption of fuel cells. Unfortunately, it has demonstrated a consistent inability to generate profits or positive cash flow. Forget generating positive net income, Plug Power hasn't been able to generate earnings on an EBITDA basis over the past decade; likewise, it has failed to report positive operational cash flow.
Now, management has made some ambitious predictions about where this company will be in 2024: $1.2 billion in sales, $200 million in operating income, and $250 million in adjusted EBITDA. And an optimistic view would argue that Plug Power's poor 2020 EBITDA and cash from operations figures may be misleading because of the vesting of stock warrants for Amazon that resulted in a $400 million reduction in the company's 2020 revenue. To this, I'd say, poppycock. This company's performance last year notwithstanding, its financials over the past decade raise the question of when -- if ever -- Plug Power will prove that the fuel cell business can be lucrative.
The stock has dipped, but it doesn't mean it's cheap
Given that expanding the use of renewable energy is a priority in President Biden's energy agenda, it's no surprise that investors are taking an especially close look at clean energy stocks like Plug Power -- especially after its recent sell-off, and more so since there is a limited field of fuel-cell-related investment options. At this point, though, Plug Power has hardly fallen enough to make it a compelling buy. In fact, the stock isn't as inexpensive as it may seem. It's currently trading at 33.2 times sales, a hefty premium to its five-year average multiple of 6.1. Take into account the fact that the S&P 500's P/S multiple is 3, and that price tag seems even steeper. For those who are intent on investing in fuel cell stocks, there are certainly better options.