Hydrogen fuel cell pioneer Plug Power (PLUG -1.96%) is taking investors on a wild ride this week. On Tuesday, the maker of fuel cells for forklifts announced a deal to supply its marquee customer, Walmart (WMT -1.05%), with up to 20 tons of green hydrogen per day. That news sent Plug Power stock rocketing nearly higher 10% by day's end.
On Wednesday, however, Plug Power quickly began giving back those gains, ending the session down 5%. And on Thursday morning, the slide continued, with shares selling off to the tune of an additional 10.1% as of 12:20 p.m. ET.
Plug Power is now trading for less than it did before news of the Walmart deal came out. So what is it that investors are so concerned about?
To find out, let's do a bit of math. According to data from S&P Global Market Intelligence, the average cost of liquid hydrogen produced from renewable energy sources -- the green hydrogen that Plug Power has started producing, and that it intends to deliver to Walmart -- ranges from $3 per kilogram to $6.55 per kilogram.
Let's assume it gets a price that's toward the high end of that range -- $6 per kilogram. The value of 20 tons of green hydrogen would then be roughly $120,000 a day in new revenue for Plug Power, or nearly $44 million per year.
Admittedly, in its press release, Plug Power noted that Walmart only has the option of requiring the company to supply this much green hydrogen to it. Furthermore, no specific timeline was given for when deliveries would begin, nor for how they might ramp up over time.
That being said, Plug Power stated in its fourth-quarter report that it's aiming to produce 70 tons of green hydrogen per day by the end of this year, so it's entirely plausible to believe these deliveries could begin in the near term. And $44 million in new annual revenues would amount to 9% of Plug Power's 2021 sales of just over $500 million -- with the potential for further growth as new customers sign up.
Seems to me as though that's actually worth a 10%-ish improvement to Plug Power's stock price. So I think investors got it right on Tuesday when they bought shares on this news -- and I think they're getting it wrong now as they sell off the stock.