Plug Power (PLUG 0.48%) stock has been on a roller coaster. In 2020, shares suddenly zoomed, increasing 60 times in value. Over the next several years, however, the stock gave up nearly all of those gains.
With a history of huge runs followed by steep losses, it is fair to ask: What will happen to Plug Power stock over the next five-year period?
NASDAQ: PLUG
Key Data Points
This is what management wants you to think
Plug Power bills itself as a bet on clean energy. Globally, more than $1.7 trillion was invested in clean energy projects in 2023. That's nearly twice the annual investment into fossil fuel production. Plug Power's management team wants investors to view the company as a key beneficiary to this huge and growing market.
The pitch is simple: A clean energy world will require the production, transport, and consumption of low-carbon fuel sources. One of those fuel sources, Plug Power argues, will be hydrogen.
Hydrogen fuel has a long history. In 1949, an English engineer named Francis Bacon developed one of the first types of fuel cell. In the 1960s, NASA invested heavily into hydrogen-powered fuel cells, leading to several commercial innovations. Today, the technology is being tested and deployed in trains, submarines, heavy-duty trucks, and even consumer vehicles.
Hydrogen fuel can be produced in several ways. The primary method today uses natural gas, while others use primarily renewable energy. Plug Power is focused on the latter, and promises to help replace a world built on fossil fuels with broad access to clean hydrogen fuel.
To this end, the company has invested more than $1 billion into hydrogen-related infrastructure. Plug Power now has more than 1 million square feet in manufacturing capacity, with several pilot projects underway, including one with protein specialist Tyson Foods that replaced some of its battery-powered forklifts with fuel cells.
Through increased manufacturing capabilities, Plug Power promises to bring scale to this nascent industry, bringing down the cost of adoption. Following its pilot projects, the company believes it can scale revenues to nearly $20 billion over the next five years.
With a market cap of just $2.5 billion, Plug Power stock would surely soar if these predictions came to pass. How high could shares rise? At the current price-to-sales ratio, Plug Power stock would theoretically be worth more than 25 times its current value if management's revenue targets are realized.
Prepare for this harsh reality
Most management teams see their companies with rose-colored glasses. Plug Power is no exception.
Is the company focused on clean energy? Yes. Is investment in clean energy booming? Yes. Might hydrogen fuel cells be a part of the global energy transition? Sure. But all that doesn't mean Plug Power doesn't face some serious near-term challenges.
The first challenge is outside Plug Power's control: Hydrogen fuel simply isn't economically viable right now, and there's no guarantee it ever will be at scale. Some estimates don't project clean hydrogen fuel to be economically competitive with natural gas until 2040.
Of course, new carbon taxes and other regulations could shift the equation at any time. And perhaps a new technology breakthrough will cause the price of hydrogen to plummet. Still, these are big ifs, and there's no guarantee that Plug Power will be a beneficiary.
The second challenge is more personal: Plug Power is running out of money.
To achieve its bold plans, Plug Power will require billions of dollars in additional capital. So far, the company has heavily diluted shareholders by selling more stock to plug its financing gap. The company just announced another $1 billion stock sale that will likely lead to even more shareholder dilution, a common theme for Plug Power.
PLUG Average Diluted Shares Outstanding (Annual) data by YCharts
There is still hope for the company. It recently made progress on a $1.6 billion loan from the U.S. Department of Energy, and began filling customer orders from a new plant in Georgia. But make no mistake: Plug Power is living on borrowed time.
So where will Plug Power stock be in five years?
The potential outcomes range widely.
The company could face insolvency, sending the stock price to zero. Alternatively, it may be able to bridge the funding gap with stock sales and emergency loans, living long enough to ride a potential wave of interest in hydrogen fuels. This alternative future would likely be kind to the share price long term, but betting on a stock like Plug Power right now is simply that: a gamble.
