Shares of fuel cell and hydrogen producer Plug Power (PLUG 3.35%) had a roller coaster of a week. On Tuesday, when the company announced a big new deal with Walmart, the stock rose double digits. But it was all downhill from there. By Friday-morning trading, Plug Power shares were actually trading down by more than 10% for the week, according to data provided by S&P Global Market Intelligence. That's a swing of of nearly 20% from the peak to the low this week.
The early-week surge came after the supplier of hydrogen fuel cells announced a new agreement with existing customer Walmart. The deal gives the world's largest retailer the option to purchase 20 tons per day (TPD) of green hydrogen from Plug Power to fuel its network of material-handling forklifts. But the market seems to see two things that are overriding the enthusiasm for Plug's new green hydrogen announcement.
On a company-specific level, the arrangement with Walmart states only that the retailer has the option to purchase the fuel. But even assuming the full amount is taken, Plug provided no details regarding the profitability of its green hydrogen business.
To be fair, it is a little early to know that, as the company just started construction on three of its new green hydrogen facilities in 2021. It expects to be generating product from four plants by the end of this year and to be producing 500 TPD by 2025. The company says it hopes to have the process providing EBITDA margins of 20%, in line with the overall corporate goal.
It expects to achieve that goal partly due to a declining cost of capital and a "continued decline in the cost of renewables." That highlights the second factor that has investors concerned. The prospect of rising interest rates will make it difficult to achieve a reduction in the cost of capital. And increasing renewable generation -- which is what fuels the production of green hydrogen -- is also dependent on capital spending.
All told, the deal with Walmart could mark a good start for Plug's green hydrogen business. But it still has a long way to go to help the company achieve profitability, and investors seemed to recognize that, too.