What happened
Shares of fuel cell pioneer Plug Power (PLUG -6.95%) jumped in Wednesday morning trading and were up 3.6% as of 10:30 a.m. ET.
Initiating coverage of Plug stock with a positive rating this morning, Susquehanna Securities praised "Plug's top-line growth potential as the green hydrogen ecosystem develops over the next several years," saying the stock is worth $26 a share, nearly 30% more than it sells for today.
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So what
Susquehanna admits that Plug stock has a relatively rich valuation, with a projected 2025 multiple of about 5.6 for enterprise value to sales. But it argues that this valuation is justified by the potential for double-digit annual top-line growth over the next decade as it sells "end-to-end green hydrogen solutions. ... from electrolyzers to hydrogen fuel to fuel cells."
Now what
I disagree for one simple reason: Susquehanna's endorsement of Plug stock hinges (apparently entirely, to judge from the note on StreetInsider.com) on the belief that investors should buy Plug because it is growing its top line.
But we don't invest in stocks simply because they produce sales, do we? Rather, we invest in stocks because we expect them to earn a profit from those sales. And for the entirety of Plug Power's nearly 25 years as a publicly traded company, according to S&P Global Market Intelligence, the company has shown itself to be entirely incapable of earning any profit from its sales.
Granted, hope springs eternal. At least some analysts see Plug suddenly turning profitable in 2024. But even Susquehanna admits that it has a "relatively cautious view of the hydrogen market," and its success is not assured. Given the risks, investing in Plug stock hoping that it will suddenly stop losing money feels like a losing bet to me.
