Plug Power (PLUG 1.26%) has taken a notable step back from the precipice of financial ruin. Last fall, it issued a dire warning that it could run out of money within a year. That's no longer true after the company made several moves to shore up its liquidity.
However, Wall Street analysts still have concerns about Plug Power's future. Here's a look at three reasons they remain worried about the hydrogen stock.
It's still burning through cash
Plug Power is spending heavily to build its hydrogen ecosystem. As a result, it's posting heavy losses and burning through cash. Last year, Plug reported over $1 billion in losses, more than its revenue. It expects to continue losing money for the foreseeable future.
That has some finance pros concerned. Jefferies analyst Dushyant Ailani recently wrote in a note to clients that "cash generation is going to be limited in our view given the capital intensity of green hydrogen build outs." He estimates that the company will continue burning cash through 2028.
Truist Securities analyst Jordan Levy also has cash burn concerns. He recently wrote that Plug Power has "a long way to go for it to hit its 70% cash-burn-reduction [target]." That drives his view that the company will need to sell a lot of stock under its $1 billion at-the-market plan, which would significantly dilute existing investors at the current price.
Revenue isn't growing as fast as expected
JPMorgan analyst Bill Peterson pointed to a different issue in his recently updated commentary on the company. He noted that Plug Power will only see modest revenue growth this year. That's a concern because supercharged revenue expansion is the primary catalyst for the stock. It expects to reach $6 billion in revenue by 2027 and $20 billion by 2030.
However, due to challenging market conditions, the company's revenue hasn't been ramping up as quickly as expected. For example, while revenue surged 27% last year to $891.3 million, it was well below the analysts' consensus estimate of $915.6 million. Revenue also missed Plug's initial outlook of $1.2 billion for the year.
Plug Power's revenue needs to grow at an accelerated rate so that it can achieve the scale it needs to become profitable. Achieving profitability would help reduce its cash burn rate and the need to sell stock to fund its continued expansion.
Margins remain weak
Another problem that Peterson pointed out was Plug's margins. He wrote, "We think a 'step change' margin improvement is unlikely to occur this year on the basis of internal hydrogen supply alone."
Levy also commented on the company's margin issues. He wrote, "Along with continued margin pressure from fuel margins, equipment/infrastructure sales margins also dipped heavily into negative territory during the quarter as both electrolyzer and fuel cell sales disappointed into [year-end]."
Plug has taken an additional step to improve its margins by cutting costs. Last month, it launched a plan to reduce its annual expenses by $75 million. It plans to consolidate operations, reduce its workforce, and take other measures to save money.
However, the "step change" in margin improvement Peterson wants won't come from cost cuts alone. Plug needs hydrogen market conditions to improve. It also needs to continue expanding its business to benefit from the economies of scale it believes it can achieve as a larger-scale hydrogen producer. Scale advantages include negotiating lower costs with suppliers as it buys in bulk. The company believes it can reach a gross margin of 32% on its 2027 revenue forecast and a 35%-plus gross margin by 2030 as it hits $20 billion in revenue. However, it currently has a long way to go.
Plug Power is still a risky bet
Plug Power believes it can capitalize on the growing hydrogen market by rapidly expanding its capacity. This expansion should accelerate revenue growth, improve margins, and lower its cash burn.
However, those positive catalysts have proven elusive, which is why analysts remain rightly concerned about the company's future. So, while it has lots of upside potential if it can deliver on its promised growth, it remains risky. As a result, investors might want to continue watching the hydrogen stock to see if it can start delivering on its promise before buying shares.
