Plug Power (PLUG +12.54%) has been a controversial stock over the last 15 years, as its valuation has risen and fallen based on hydrogen's hype cycles.
But this is no longer a start-up-sized company that we should value on hype. It has $880 million in revenue and a market cap of $3.5 billion, so investors need to have energy-type expectations for the stock. The question is: Can Plug Power live up to that?
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Plug Power's growth and profitability
You can see below that Plug Power is absolutely a growth stock. It has increased sales to materials handling companies and added new products like electrolyzers to the pipeline. There's just one problem. Plug Power can't seem to make money.
PLUG Revenue (TTM) data by YCharts
Net loss is nearly as large as revenue, and the company has never reported a profit. There have been lofty expectations of when Plug Power will reach profitability, but it never quite happens.
This isn't a unique problem in hydrogen. Most of these companies are still losing money. But Plug Power's losses as a percentage of revenue are the worst in the industry -- and there's absolutely no sign the trend is changing.
Remaining a going concern
How does a company that's never made money survive? The simple answer is by continually selling stock. You can see below that Plug Power's share count has risen steadily for decades and hasn't shown any signs of stopping.
PLUG Average Diluted Shares Outstanding (Quarterly) data by YCharts
Another red flag is how Plug Power has used stock to generate revenue. High-profile contracts with Amazon and Walmart included warrants to buy stock, giving the customer financial upside just for buying products. And these weren't advanced equipment deals -- Amazon and Walmart were converting forklifts from battery power to hydrogen.
New products are intriguing
Investors should consider that new products like electrolyzers do have a lot of potential. Management expects electrolyzer revenue to increase in the second half of 2023 and are eyeing 7.5 gigawatts of sales opportunities over the next 12 to 18 months.
What's so exciting about electrolyzers is their incredible potential. Hydrogen could theoretically be used in transportation, electricity production, and almost any energy use case. So, the production of hydrogen with an electrolyzer could be an enormous business... eventually.
The challenge is that electrolyzers are still unproven, and Plug Power isn't making money on them.
Plug Power needs to prove it
I am bullish on hydrogen as a fuel source in the long term because it has the potential to be created cheaply and cleanly. But a big potential market can't be the only reason to own a stock. The underlying company needs to have a differentiated product that can be sold profitably. Plug Power hasn't shown it can do that.
Until Plug Power can prove that it's more than hype, this isn't a stock I would buy. Management has never shown the ability to make money selling hydrogen products, and I don't see evidence that there's a competitive advantage for the company. Until that's proven wrong, Plug Power could continue to slide.
