Shares of Plug Power (PLUG 8.21%) skyrocketed this week, surging 34.3% at its highest point in trading, according to data provided by S&P Global Market Intelligence. Investors in the hydrogen fuel cell maker aren't accustomed to such a solid rally -- Plug Power stock, after all, has been in a free fall and is still down 79% in just one year, as of this writing. This week's rebound, also the biggest rally in three years, has left investors hopeful that this is the bottom for the hydrogen stock.
Plug Power is trying to fix its biggest problem: cash
Having flagged its poor cash position just months ago and even issuing a "going concern" warning, the market was rightfully jittery about Plug Power stock ahead of the company's annual business update. So when Plug Power said this week that it was close to securing a large amount of funding from the government, it was unsurprisingly a big catalyst for the languishing stock.
NASDAQ: PLUG
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Plug Power said it had negotiated a loan of $1.6 billion with the Department of Energy (DOE) and could finalize the funding by the third quarter of this year. That's a lot of money for a company that had only $110 million in cash and cash equivalents as of Sept. 30, 2023, and clearly stated that its existing cash and securities available for sale will not be enough to fund its operations for the next 12 months.
If Plug Power can secure the DOE loan, it could help the company develop as many as six hydrogen production facilities. Plug Power currently has three hydrogen plans under construction in Texas, New York, and Louisiana, and four plants or sites under development.
This week, Plug Power also started production at its green hydrogen plant in Georgia, which is now its largest plant in operation, with a production capacity of 15 tons of liquid electrolytic hydrogen per day. At full capacity, the plant is expected to boost Plug Power's fuel margin substantially and help it cut losses. Negative fuel margin was one of the primary reasons why Plug Power reported a negative gross margin of 69% in its third quarter.
Is Plug Power stock a buy at its current price?
Plug Power stock surged on news of potential funding, but let's not forget that the company is yet to secure the loan and will continue to need cash until then to run its day-to-day operations. That's still an arduous task. And even if Plug Power secures the funding, it still has to cut costs and boost its margins to convince investors that it can be a profitable company someday.
Simply put, while it's true that the DOE funding will pull Plug Power back from the brink of going broke, it still doesn't change the long-term narrative for the stock, which looks anything but appealing for now.
