Plug Power (PLUG +0.00%) and QuantumScape (QS +2.91%) are two of the most popular energy stocks among investors these days. Powering their popularity is their focus on the future of energy. Many investors believe these stocks can produce high-powered returns as they rev up their growth engines in the coming years.
I'm more skeptical about their ability to deliver returns for investors. Because of that, I won't be buying their shares this year. However, I'm still investing in the future of energy. I plan to buy more shares of several future-focused energy stocks in 2024, including NextEra Energy (NEE 0.42%).
Running out of power
NASDAQ: PLUG
Key Data Points
Plug Power is an emerging leader in hydrogen. The company has grand growth ambitions. It expects to grow its revenue from $1.2 billion last year to $6 billion by 2027 and reach $20 billion by 2030. That's a staggering 50% compound annual growth rate. That scorching growth rate could enable Plug to produce powerful returns for investors.
However, there's one problem with Plug's plans. It's running dangerously low on fuel. Due to deteriorating market conditions and other issues, the company's liquidity is drying up. Plug unveiled last November that it might not be able to continue as a going concern. The company is "projecting that its existing cash and available for sale and equity securities will not be sufficient to fund its operations through the next twelve months."
Plug needs to plug into additional capital sources to fund its operations and growth. That could be highly dilutive to existing investors. Because of that, Plug's stock might not deliver returns for investors even if it achieves its bold growth plans. That has certainly been the case throughout its history. Plug has lost a staggering 96% of its value since its initial public offering (IPO) in 1999.
Risks remain
NASDAQ: QS
Key Data Points
QuantumScape is developing a next-generation battery-storage solution. The company's solid-state batteries could be a game-changer for the electric vehicle sector by providing better battery life and other advantages over traditional lithium-ion batteries. Early tests by partner VW Group have confirmed that the battery has far exceeded the lifespan of a typical lithium-ion battery.
My concern with QuantumScape is that it's still in the early stages of commercializing its products. Because of that, it has a long road ahead before reaching profitability. The company will need to build and scale its manufacturing capacity, which will take time and money.
I'm worried that capital could become a problem for QuantumScape in the future, much like it has become for Plug Power. It's not a concern at the moment because the company raised another $300 million in cash by selling additional shares last August, boosting its liquidity to $1.1 billion. Given its current cash-burn rate, that gives it enough money to operate until at least 2026. However, it's unclear when the company will reach the point of sustainable profit growth, which is the key driver of stock-price appreciation over the long term. Shares have already lost more than 60% of their initial value and could remain under pressure until the company can turn the corner on profitability.
A proven value creator
NYSE: NEE
Key Data Points
NextEra Energy offers something Plug Power and QuantumScape lack. It's a proven value creator in the clean energy sector. The leading renewable energy producer has generated a more-than 14% annualized total return over the past decade. That has outpaced the over 12% annual total return by the S&P 500.
Profitable growth is the key to its success in creating shareholder value. The utility has grown its adjusted earnings per share at a nearly 10% compound annual rate over the past decade. Steadily rising profits have given it the funds to invest more money into expanding its clean energy businesses while returning more cash to shareholders. NextEra Energy has grown its dividend at an 11% compound annual rate over the last 10 years.
The company has plenty of power to continue growing its earnings at an attractive rate. It expects to deliver earnings growth toward the upper end of its 6% to 8% annual target range through 2026. Powering that growth is its continued investments in high-return renewable energy and energy storage projects. The company sees plenty more growth ahead as it capitalizes on the potentially massive hydrogen market, which could be a $4 trillion investment opportunity in the U.S. alone by 2050. NextEra Energy's future investments in renewables, battery storage, and hydrogen could give it the power to continue producing market-beating total returns.
A much lower-risk investment
Plug Power and QuantumScape hold lots of promise. They could deliver powerful returns in the years ahead as they build out their manufacturing capacity and grow their revenue -- if they don't run out of cash, which is a huge risk.
NextEra Energy, on the other hand, is a much safer bet. The company generates more than enough cash to fund its growth, giving it excess to return to shareholders through a growing dividend. That's why I'd buy more shares this year while continuing to steer clear of the riskier Plug Power and QuantumScape.
