Please ensure Javascript is enabled for purposes of website accessibility

Could Plug Power Stock Help You Retire a Millionaire?

By Rekha Khandelwal – Aug 24, 2021 at 9:01AM

Key Points

  • Plug Power's lack of profitability isn't the only concern relating to this stock.
  • Hydrogen fuel may find limited applications compared to what fuel cell companies are expecting.
  • Plug Power is expanding operations beyond fuel cells for forklifts used in material handling.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Can the fuel cell maker's high revenue growth help it turn profitable?

Plug Power (PLUG 1.62%) has grown its revenue impressively in the last few years. Yet it is still nowhere near profitability. That's a mixed signal, which makes it hard to decide where the company is headed. Given the way it is progressing, Plug Power may take quite a few years before it becomes profitable. For a growing company, that isn't necessarily a concern.

Let's take a longer view -- a decade and beyond -- and try to find if Plug Power stock can help you retire a millionaire.

Hydrogen as a fuel

The use of hydrogen as a fuel is increasingly gaining traction. Many countries are actively promoting hydrogen. As an example, South Korea is targeting 81,000 fuel cell electric vehicles (FCEVs) in use by 2022 and hopes to increase this number to 2.9 million by 2040. In 2019, countries participating in the Second Hydrogen Energy Ministerial Meeting in Japan set a goal of putting 10 million FCEVs on roads by 2030. 

A white car waiting for hydrogen refueling with blue sky in the background.

Image source: Getty Images.

However, the actual progress on this front so far has not been very encouraging. In 2020, only around 10,000 new FCEVs came on the roads globally, taking the total number of FCEVs in use to a mere 35,000. Notably, the number of vehicles added in 2020 was lower compared to around 12,350 new FCEVs that were added to the global stock in 2019. Countries will need to do a lot more if they want to meet their collective targets in hydrogen use.

Several factors are limiting, and may potentially limit, the adoption of hydrogen as a fuel. With the growth in battery-powered vehicles, the incentive to develop hydrogen refueling infrastructure is diminishing. Again, the absence of supporting infrastructure, in turn, further restricts the growth of FCEVs. This infrastructure will likely need governmental support and incentives to develop. Right now, growth of battery-powered vehicles has clearly outpaced that of FCEVs, at least in the light vehicles segment. There were roughly 6.7 million battery electric vehicles in use globally at the end of 2020. Hydrogen's combustible nature, as well as challenges relating to its storage and transport, are among the factors liming its growth as a transport fuel.

Yet hydrogen can be useful in heavy-duty vehicles, stationary power generation, industrial use, aviation, and marine applications. In short, there are significant growth avenues for hydrogen fuel despite its limited adoption in light-duty vehicles.

The problem with Plug Power

Plug Power reported revenue of $124.6 million in the second quarter. That's more than 30 times its quarterly revenue 10 years ago. Importantly, its revenue growth has accelerated in the last few years. In Q2, the company's revenue grew 83% year over year. Though it looks impressive, the concern is that Plug Power isn't growing its profits in line with the revenue growth. On the contrary, its losses continue to widen, and it continues to burn cash at increasingly higher rates.

PLUG Net Income (Quarterly) Chart

PLUG Net Income (Quarterly) data by YCharts

Plug Power's second-quarter loss stood at $99.6 million, compared to a loss of $9.4 million in the second quarter of 2020. With no profits so far in its history of over two decades, Plug Power has relied on shareholders' funds for its operations. The company expects to generate gross margin of more than 30% by 2024. 

It would take at least some more years beyond 2024 for Plug Power to generate net profits. Moreover, the company has failed to deliver on its plans quite a few times in the past. As things stand today in terms of Plug's widening losses, I am skeptical about it meeting its 2024 gross margin guidance.

A tough road ahead

So far, Plug Power has been selling fuel cells largely for use in forklifts. The company's inability to do so profitably even after so many years likely indicate that the buyers are not willing to pay more for fuel cells than alternative options available to them. Plug Power hasn't suggested any concrete plans as to how its fuel cells can be sold profitably in the materials handling market.

At the same time, the company is investing to expand into newer segments, including transport, aviation, and marine. However, it would be several more years before it becomes clear if Plug Power is profitable in these new markets.

All in all, I'm skeptical about this stock right now. To me, it does not look like Plug Power stock could help you retire a millionaire. You might want to look elsewhere for that objective.

Rekha Khandelwal 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 a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Plug Power Stock Quote
Plug Power
PLUG
$15.73 (1.62%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.