What happened
Plug Power (PLUG 6.52%) stock's 26% run-up in July after a precipitous fall in the earlier months led many investors to believe that the stock had bottomed. That euphoria didn't last long, though. Shares of the hydrogen fuel cell manufacturer gave up all those gains and then some in August, slumping by 35.5%, according to data provided by S&P Global Market Intelligence.
With Plug Power bagging several supply deals for electrolyzers in recent months, including a couple in July, investors may have believed the loss-making company could turn cash-flow-positive sooner than previously expected. The quarterly numbers the company released in August suggest otherwise.
So what
Plug Power generated record quarterly revenue of $260 million in the second quarter. Revenue was up 72% year over year thanks to new hydrogen installation sites and strong demand for fuel cell systems. Management also reaffirmed its outlook for 2023 revenue of $1.3 billion at the midpoint of its guidance range, which would amount to 85% growth over 2022.
That's solid growth, but investors aren't impressed because although Plug Power's top line is headed in the right direction, its bottom line isn't. In Q2, Plug Power's gross loss more than doubled year over year to $78 million. It also consumed $625 million of cash for operating activities against a net loss of $443 million during the six months that ended June 30.
Plug Power stock tumbled in the wake of the earnings report as investors realized the company remains far from profitability. Its dwindling gross margin also compelled several analysts to slash their price targets on the hydrogen stock, including Roth MKM analyst Craig Irwin, who cut his target to $7.50 per share from $13 a share, according to TheFly. Irwin wrote that he believes the company could spend a lot more on commissioning its new plants than previously expected. His price target for Plug Power is now among the lowest in the analyst community.
Now what
Plug Power's green hydrogen plant in Georgia is in its final stage of commissioning, and the company is also expanding capacity at other plants, including its gigafactory in Rochester, New York. These are good growth moves, but they come at a cost and require money. That explains why Plug Power's expenses are surging, and why the company is exploring funding options including taking on debt. Although Plug Power doesn't have a lot of debt on its books right now, investors would prefer to see the company generate positive cash flow from incremental revenues to fund growth rather than accessing external funding that will only add to its interest expenses.
There's a sliver of hope, though. Plug Power expects margins to improve considerably through the rest of 2023 and beyond as it starts producing green hydrogen internally at new plants instead of buying all the fuel from the market. Plug Power's gross margin, therefore, will be the most important metric for investors to watch in the coming quarters, as it could determine where the stock is headed next.
