Plug Power (PLUG 1.26%) stock has been a roller coaster. In January, shares nearly doubled in value only to give up those gains by the end of the month. February brought much of the same, with the stock price recently surging 17% over a handful of days.
Despite the volatility, shares remain well below their all-time highs. But if the company's management team succeeds with their vision, it's possible that Plug Power stock could rise in value by 1,000% or more.
Is this beaten-down growth stock finally a buy?
Plug Power has an exciting history
Despite its innovative business model, Plug Power isn't a new company. The company went public in 1999 at the height of the dot-com bubble. Its leaders had a lofty vision: to replace fossil fuels with hydrogen fuel cells.
This vision proved ahead of its time. When the dot-com bubble crashed, Plug Power stock lost more than 99% of its value. For the next decade, the share price remained depressed.
In 2020, everything changed. The share price zoomed higher by nearly 2,000%, reaching a market cap of more than $35 billion.
Then, just as suddenly, the share price collapsed. Today, the stock price remains beaten down, trading roughly at pre-surge levels, with a market cap of around $3.5 billion.
It's important to highlight that from a fundamental standpoint, many items on Plug Power's income statement continued to improve throughout the volatility. Revenue for 2023 was around three times higher than 2020 levels. And if management is to be believed, this rapid growth has only just begun.
Plug Power's primary mission today is to create a vertically integrated clean-energy hub focused on hydrogen fuel cells. It seeks to not only produce hydrogen fuel but also to transport, store, and deliver the fuel to customers.
As the company's revenue indicates, Plug Power has already achieved part of its long term vision. It has, for example, nearly 1 million square feet of manufacturing capacity. It also has five hydrogen production facilities under construction or already online, with five more in development. Several pilot projects in South Korea, meanwhile, are providing real world proof points that its technology can work at a small scale.
Management believes that hydrogen fuel cells can help rapidly transition the global economy away from fossil fuels. Its revenue targets -- $6 billion by 2027, and $20 billion by 2030 -- reflect that optimism .
Plug Power has an exciting history, but the hydrogen economy has long been overhyped and underdelivered.
A lack of cost competitiveness is largely to blame, but there are also concerns with how clean the energy source is given hydrogen fuel can be produced either with renewable power or conventional fossil fuels.
With an unprecedented volume of funds being directed toward climate-friendly technologies, however, this could finally be Plug Power's opportunity to shine. It operates in an increasingly crowded market, and many competitors believe they can scale faster with more efficient technologies.
Still, a big reason Plug Power has struggled in previous decades is that the global hydrogen economy has failed to take off in any meaningful way. Over the coming years, that could change.
Should you buy this growth stock right now?
Before you jump into Plug Power stock, there are a few important things to know.
First, the company is betting on a change to the status quo. Right now, the use of hydrogen as a fuel source remains incredibly small. Switching to hydrogen as a fuel source, meanwhile, typically requires costly investment. For most industries, the cost of switching still isn't worth it, meaning Plug Power must continue to build scale to bring these costs down .
To execute on its growth vision, Plug Power will likely need to invest billions of additional dollars into new infrastructure. That will require additional debt or stock sales, with free cash flow levels remaining in the negative likely for several more years at the minimum.
Notably, the company issued a "going concern" notice in November, an accounting warning that triggers whenever a company's balance sheet deteriorates to the point that near-time financial survival becomes threatened. The company has been selling stock hand over fist to raise cash, and recently finalized a term sheet with the U.S. Department of Energy for a $1.6 billion loan. But make no mistake: Plug Power's current balance sheet will have a very difficult time executing on the company's lofty promises.
Can Plug Power grow its revenue to $30 billion by 2030 as its management team expects? Sure, but there is a meaningful likelihood of failure. If financing dries up or demand for hydrogen fuel fails to scale, Plug Power may end up building an empire for nothing.
PLUG Average Diluted Shares Outstanding (Annual) data by YCharts
The second thing to know before buying Plug Power stock is that the company may fail even if hydrogen fuel wins. For example, the company currently transports most of its hydrogen fuel to customers via a fleet of trucks. Long term, however, it is probably cheapest to deliver the fuel by pipeline, the same way fossil fuels are transported over long distances.
Of course, Plug Power might end up transporting its production by pipeline, but this type of infrastructure is incredibly expensive to produce, meaning the company would need to build its own infrastructure from scratch or pay an existing pipeline operator to use its network.
Right now, there are only around 1,600 miles of hydrogen pipelines operating in the United States compared to the nation's 2.6 million miles of fossil fuel pipelines. Many fossil fuel companies are looking to transition their conventional pipelines to be able to handle hydrogen, but this transition will takes years if not decades .
All of this is to say that the future of how the hydrogen economy will look is still in question, even if one assumes that overall global demand for the fuel source skyrockets. Plug Power is ready for the hydrogen economy to take off, but there's a chance the industry will form in a way that doesn't benefit the company as much as management believes.
Should you take a chance on Plug Power stock? It clearly has huge potential upside, but it will probably be many years before the company's ultimate fate can be determined. The company's repeated inability to execute on its big promises combined with a near-term funding crunch will continue to keep me on the sidelines.
