Plug Power (PLUG 2.80%) has taken its shareholders on quite a roller-coaster ride over the past few years. Five years ago, it was a stock no one cared about, and it traded for about $1 per share. During the investing enthusiasm of 2020 and 2021, the stock topped more than $70. However, it's been a long march downward since then, as the stock trades for about $4 now.
It would be a massive win for shareholders if it could return to its highs (or even half of that). So, should you buy the dip on Plug Power's stock?
Plug Power is running out of money
Plug Power is completely invested in the rise of hydrogen power for vehicles. It covers all aspects of the ecosystem: production, transportation, and end-use. While electric vehicles (EVs) have taken the lead in green energy vehicles, hydrogen power is still around in various vehicles.
In fact, management noted in its third-quarter conference call that there was a massive hydrogen shortage in the U.S. This was made worse by Plug Power's Tennessee production facility being down. When functional, this provides about 20% of the hydrogen Plug Power needs, and it is vital to hydrogen cars on the East Coast.
NASDAQ: PLUG
Key Data Points
All of this contributed to Plug Power only producing revenue of $199 million in Q3 versus expense of $473 million. That's a substantial burn rate and raises many red flags. Plug Power only has about $111 million in unrestricted cash on its balance sheet as of Sept. 30. That means if Plug Power runs at the same burn rate and doesn't raise cash, it will go bankrupt.
This isn't a guarantee that Plug Power is doomed, as it has a few tricks up its sleeve.
Seeking outside funding to keep going
Plug Power has a few propositions on the table to help it out during this tough time. First, it's seeking out a corporate debt solution to take on a loan to finance its growth. This may be a dead end as a lender may be unlikely to fund Plug Power if they view it as a loan that will never be repaid.
Furthermore, if they can get a lender to agree to let them borrow, the interest rate will likely be unbelievably high to compensate for the high amount of risk involved with funding Plug Power, as there is no guarantee this technology will turn into a profitable business someday.
The company has also been in contact with the U.S. Department of Energy to receive a loan from them to bring about more green energy. Management was fairly confident in this path, which is the most likely avenue for Plug Power's survival.
But does that mean you should invest in Plug Power? I'd say no. While the company has innovative technology, it may not make the best investment. It has been years since Plug Power's gross profit was in positive territory.
PLUG Gross Profit Margin (Quarterly) data by YCharts
While hydrogen power may eventually be feasible, Plug Power may have been too early to the game. As a result, its shareholders may take a total loss, even if the company can reorganize after a potential bankruptcy.
There are too many other good investments in the market to consider buying Plug Power now despite how tantalizing the stock price may be.
