Falling a staggering 78% since this time last year, shares of Plug Power (PLUG 1.26%) have performed miserably in 2023. The fuel cell and hydrogen stock has fared even worse over the past three years -- a period during which it has plunged 87%.
But there are still those who believe Plug Power's best days lie before it. For these undaunted optimists, in fact, the stock's current price tag might even seem like an excellent buying opportunity. Let's look at some important points that prospective investors must appreciate before choosing to plug this stock into their portfolios.
The fuel cell company's future has taken a shocking turn
For years, bulls have held fast to the belief that Plug Power's success was just around the corner. The company was growing revenue at a rapid clip, and management hinted that profitability would soon follow. Now, however, those same investors have removed their rose-colored glasses in looking at the company's future.
In Plug Power's third-quarter 2023 financial report, management had some stark words for investors. Specifically, it stated, "The Company expects to generate operating losses for the foreseeable future." That's a far cry from a 2021 investor presentation, when the company forecast a 2025 operating income margin of more than 17%. Similarly, the company had an equally robust view of its future profitability more recently. In a 2023 investor presentation, Plug Power targeted 2026 and 2030 operating income margins of 17% and 20%, respectively.
Even more alarming in the Q3 2023 report is where management states that current circumstances "raise substantial doubt about the Company's ability to continue as a going concern." In other words, management isn't confident the company can continue to meet its financial obligations -- something few prospective investors want to read.
Even analysts have turned bearish on Plug Power's prospects
It wasn't so long ago when analysts expected big things from Plug Power. This past July, two analysts had set price targets of $22 and $9. Before that, in June 2022, one analyst at KeyBanc Capital Markets had set an even more auspicious $40 price target. But the pros aren't as hopeful nowadays.
After the company reported its Q3 2023 financial results, Vikram Bagri, a Citigroup analyst, downgraded the stock to "neutral" from "buy" and slashed the price target to $5 from $12.50. Like Bagri, UBS analyst Manav Gupta also has a $5 target, though it reflects a steeper cut from a prior price target of $15.50. Analysts at Wells Fargo and Morgan Stanley are even more circumspect, assigning price targets of $4 and $3.50, respectively.
In isolation, an individual analyst's perspective should be taken with a grain of salt since it's a lone opinion. However, in this case, the widespread skepticism is an indicator that Plug Power's financial woes shouldn't be taken lightly.
The company's cash pile is dwindling
Back in 2021, Plug Power was flush with cash. It had completed an offering of 32.2 million shares, which resulted in raising more than $2 billion in cash -- proceeds that would help the company expand its hydrogen generation network among other growth initiatives.
PLUG Cash and Short Term Investments (Quarterly) data by YCharts
In its Q3 2023 financial report, however, Plug Power reported cash, short tern investments, and equivalents of only $567 million. With the company unable to generate organic cash and a variety of projects in development, it's mandatory that the company will have to raise capital in the immediate future. Whether it's through the issuance of debt, which will weigh down the balance sheet, or through the issuance of equity, which will dilute shareholders, the company is hardly on sound financial footing. Prospective investors, therefore, should fully appreciate the risks associated with picking up shares.
Is today a good day for purchasing Plug Power stock?
While management continues to emphasize the future, namely with the hydrogen production projects it has in development, it's critical for prospective investors to recognize the considerable risks tied to an investment in Plug Power. It might be hyperbolic to state that the company is in the middle of an existential crisis, but it's not far off. And in the coming quarters, the company may just reach that point. Fortunately for hydrogen bulls, there are plenty of other hydrogen stocks with which they can gas up their portfolios.
