A few different things can be true at the same time. First thing: Plug Power (PLUG 1.26%) has been a massive long-term winner. Investors who have held shares for three, five, or 10 years have made a lot of money.
Second thing: Plug Power the business has never made money. In nearly 25 years as a public company, it has never generated a full year of profits and never generated a full year of positive cash flow. It has only nibbled at profitable quarters a handful of times in a quarter century.
But is that finally about to change? Hydrogen seems to be having its moment, and big partners are lining up to spend billions to access green hydrogen as a fuel source for transportation, shipping, energy storage, and electricity production. And Plug Power says it's poised to take a big share of this future market.
The bull case for Plug Power
The world is starving for more energy. And while it's likely that much of that energy will continue to come from hydrocarbons, renewable energy and carbon-free sources including wind and solar continue to take market share.
The problem? Matching intermittent supply with demand. Battery storage will bridge much of this gap, but it also represents an enormous opportunity for green hydrogen.
The dirty little secret of the hydrogen industry is that the majority of it is produced as a by-product of oil or natural gas processing or production, or derived from natural gas. But the significant decline in the costs of wind and solar now make it feasible to produce hydrogen via electrolysis powered by wind and solar.
The company estimates a global hydrogen market of more than $2 trillion by 2050 and expects it will play some role in every part of the value chain, including green hydrogen production services and equipment, as well as the fuel cells that power transportation and stationary applications. With trailing-12-month revenue of $771 million, Plug Power is spending heavily to build the infrastructure to grow its sales and take its share of this exploding market.
With more than 25 years in business, Plug Power does have deep knowledge of the industry, the big players, and the opportunities.
The bear case for Plug Power
Plug Power does have a very long history, and on paper, that should serve it well as demand for hydrogen -- particularly green hydrogen -- grows. But the biggest yellow flag -- maybe a red flag for some -- is how utterly unprofitable the company has been over that long history.
Yes, many companies lose money as they are building a base of business and getting established. That's been the case for some of the best stocks you could have bought over the past quarter century.
However, the issue with Plug Power isn't the recent investments: This is a quarter-century-old company. And Plug Power has never, in its entire public history, been profitable in any year. It has never generated positive cash flow in any year. And despite two-and-a-half decades to have built up its core business, the losses are getting bigger, not smaller, as the chart shows.
PLUG Net Income (TTM) data by YCharts
In addition, despite stellar returns for its stock in recent years, Plug's stock price is still more than 90% below its post-IPO price and down more than 80% from the price five years after going public.
That's because Plug's business has been entirely subsidized by secondary stock offerings to raise more money to fund the next big thing. Sadly, that next big thing has never gone the way of the Amazons or Teslas of the world, two companies that used those initial start-up funds to push through early losses to generate big profits.
TSLA Free Cash Flow data by YCharts
This has led to massive value destruction for investors. Plug Power went public with less than 5 million shares; it now has more than 600 million shares outstanding, a nearly unfathomable 13,860% increase. If you'd bought 1% of Plug Power the day it went public and never bought any more shares, you'd now own 0.007% of the company. That's a 99% dilution in your ownership.
Simply put, Plug Power's most successful "business" since its IPO hasn't been selling its GenDrive fuel cells; it's been telling a great story about the future of hydrogen to investors, issuing and selling new shares, and then using that money to fund its cash-burning operations.
Buy or not? It's time to prove itself first
I do believe that hydrogen -- particularly green hydrogen -- will play a major role in the future of energy. The decline in the cost curve for wind and solar, as well as the need to store and move that energy around, make hydrogen incredibly compelling as a way to more cleanly power a growing world.
The problem with Plug Power is simple: The company has never given us proof that it can actually make money, with a boom/bust cycle for its stock that has historically been more bad for investors than good. I hope Plug Power can finally make the transition to profitable growth, but until the company proves that it can actually make money from its operations instead of from the wallets of shareholders, investors would do better looking elsewhere.
