Plug Power (PLUG +12.54%) has lost about 99% of its value since its initial public offering in 1999. The hydrogen fuel cell maker was once considered a promising green energy play, but it ran out of juice as its growth cooled off and it racked up steep losses. The dot-com crash and some accounting problems from 2018 to 2020 exacerbated its decline.
But with its stock trading at about $2, Plug Power's enterprise value of $2.6 billion values the company at just two times next year's estimated sales. Analysts also still have an average price target of $4 on the stock. So should you buy this unloved stock and expect it to more than double over the next few years?
Image source: Getty Images.
Why did Plug Power's stock collapse?
When Plug Power went public, it initially planned to develop hydrogen-powered residential systems. But that idea never took off for two reasons: It cost more to produce hydrogen than oil or natural gas, and it was more cost-efficient to expand existing electrical grids than to build new hydrogen-powered infrastructure.
NASDAQ: PLUG
Key Data Points
Plug Power eventually abandoned that ambitious plan and pivoted toward a new niche market of selling fuel cells and charging services for forklifts in warehouses and fulfillment centers. It's already deployed over 69,000 fuel cell systems and 250 fueling stations across the world, and it's now the world's largest single buyer of liquid hydrogen.
That core business gained Amazon and Walmart as its top customers, but Plug Power subsidized its fuel cell sales to those two retailers with stock warrants -- or options to buy more of its own shares at a discount. That unusual arrangement turned Amazon and Walmart into Plug's top investors, but it subsequently restated all of its financials from 2018 to 2020 because it didn't properly disclose how those incentives temporarily eclipsed its customer payments.
After those recalculations, Plug Power's reported revenue actually turned negative in 2020. Its revenue turned positive again in 2021, but its growth cooled off over the following two and a half years as its operating and net losses widened:
|
Metric |
2021 |
2022 |
2023 |
1H 2024 |
|---|---|---|---|---|
|
Revenue |
$502 million |
$701 million |
$891 million |
$264 million |
|
Operating margin |
(87%) |
(97%) |
(151%) |
(191%) |
|
Net income (loss) |
($460 million) |
($724 million) |
($1.37 billion) |
($558 million) |
Data source: Plug Power.
Moreover, most of Plug Power's revenue growth from 2021 to 2023 was driven by two big acquisitions that expanded its cryogenic equipment unit. That inorganic growth masked the weakness of its main hydrogen fuel cell business, which struggled as the macro headwinds reduced the market's demand for expensive new hydrogen projects. The costs of integrating those businesses also crushed its operating margins.
For the full year, analysts expect Plug Power's revenue to decline 6% to $837 million as it slightly narrows its net loss to $914 million. That seems like a bleak situation for a company that ended its latest quarter with just $62 million in unrestricted cash and equivalents. It's also increased its outstanding share count by more than 400% over the past decade with its secondary stock offerings and stock-based compensation.
But don't ignore the potential catalysts
It's easy to see why Plug's stock collapsed, but its insiders actually bought seven times as many shares as they sold over the past 12 months. Norges Bank, the central bank of Norway, recently increased its stake in the company to nearly 8%.
The Federal Reserve also recently cut its benchmark interest rate for the first time in four years. If it continues to cut those rates over the next year, Plug's business could stabilize and grow as its customers focus on hydrogen upgrades again.
That's probably why the U.S. Department of Energy recently granted Plug Power a new $1.66 billion loan guarantee to build up to six new green hydrogen energy production facilities. That lifeline will prevent Plug from going bankrupt, but tapping the entire loan would also roughly double its current debt-to-equity ratio to 1.2.
To stabilize its near-term liquidity, Plug Power recently sold some of its equipment to Antin Infrastructure Partners' GTL Leasing for $44 million and leased it back. That deal could help it tread water and avoid taking on too much debt.
Should you buy Plug Power's stock right now?
Assuming the hydrogen market recovers, analysts expect Plug's revenue to soar 82% to $1.3 billion in 2025 and grow 41% to $1.8 billion in 2026. They also expect it to narrow its net losses to $477 million in 2025 and $331 million in 2026.
But we should be skeptical of those expectations, since Plug has been telling the same "wait and see" story for 25 years now. A few green shoots are appearing, but I wouldn't rush to buy the stock and expect it to bounce back to $4 anytime soon.
