Plug Power (PLUG 0.39%) believes in a hydrogen-powered future. It's taking a leading role in building the global hydrogen economy with its fully integrated ecosystem. It provides a variety of hydrogen-related products, including electrolyzers, that help companies produce this lower-carbon energy source.
The company recently won another deal to help expand the global hydrogen economy. Here's a look at whether it makes this top hydrogen stock a buy.
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Expanding the hydrogen economy in Uzbekistan
Plug Power recently announced a meaningful expansion of its partnership with Allied Green Ammonia. The hydrogen company secured the opportunity to supply 2 gigawatts (GWs) of its proton exchange membrane (PEM) electrolyzers to a sustainable fuels project in Uzbekistan. Plug's electrolyzer technology will be the foundation for a new $5.5 billion green chemical production facility in that country that will produce sustainable aviation fuel, green urea (a fertilizer), and green diesel. The project has the backing of the government of Uzbekistan.
This project is a continuation of Plug's collaboration with Allied Green. In January, Plug Power committed to supplying 3 GWs of electrolyzers for Allied's flagship green ammonia facility in Australia. Allied will use green hydrogen produced at that site with solar power to make the green ammonia.
The company is working toward making a final investment decision (FID) for that project in the fourth quarter of this year. That's a little later than its initial expectation of making a positive FID in the second quarter. Plug plans to start manufacturing and delivering its PEM electrolyzer for this project in 2027.
These projects might not be the last collaboration between the two partners. "This agreement reflects our deep confidence in Plug's team, technology, and ability to deliver on bold, world-class projects," stated Allied Green's Alfred Benedict. He continued, "Together, we are creating meaningful momentum for global decarbonization -- first in Australia, now in Uzbekistan, and in future regions to come."
Promising potential
Project wins like those with Allied put Plug Power on track to achieve its bold plan to deliver sustainable growth and profitability in the coming years. The company is targeting 30% compound annual growth in its energy business through 2030, with revenue growth fueled by its electrolyzer and cryogenic solutions. Plug also targets a 30% compound annual growth rate during that period from its applications business.
These robust revenue growth rates will scale the company's business while enhancing its margins. Plug expects 2025 to be a transformational year as it reaches an inflection point of ending with a positive gross margin run rate. The company's Project Quantum Leap is a big driver. It's targeting to deliver more than $200 million in annual savings through various initiatives aimed at reducing its cash burn rate.
That would set the stage for sustainable growth in the coming years. Plug aims to achieve positive operating income by the end of 2027 and exit 2028 having reached overall profitability.
Plugging the gap
While Plug Power has tremendous growth prospects, a key issue for the company has been financing its operations and expansion, given its lack of profitability. The company has been burning through cash to fund its operations. Its net cash used in operating activities was $728.6 million last year, $1.1 billion in 2023, and $828.6 million in 2022.
That has forced the company to raise outside capital to fund its operations and growth. A major funding source has been issuing new stock. That has significantly increased its outstanding shares and diluted its existing investors:
PLUG Average Diluted Shares Outstanding (Quarterly) data by YCharts
That massive wave of new shares is why the stock price has cratered more than 90% during the past three years.
On a positive note, Plug Power doesn't anticipate any more dilutive equity offerings this year. It has already raised $280 million by selling over 185 million shares in March. The company also closed a $525 million secured credit facility with Yorkville Advisors. In addition, it closed a $1.66 billion loan guarantee from the U.S. Department of Energy to support the build-out of six green hydrogen production facilities.
However, given that the company doesn't expect to reach profitability until 2028, it might not be done making dilutive equity issuances. If it sells more stock at a low share price, that could put additional weight on its value.
Lots of promise, but lots of risk
Plug Power expects to deliver robust revenue growth over the next five years as more companies like Allied adopt its hydrogen solutions. Deals like those put it on pace with the long-term target to reach sustainable profitability.
However, the big question is how the company will fund its operations and growth while it works toward achieving profitability. If it continues to sell stock, the share price will remain under pressure. Because of that, it's just too high a risk to buy right now. It needs to continue executing its growth strategy, improving its cost structure, and enhancing its liquidity without diluting shareholders before it becomes a compelling investment opportunity.
