Long-term investing is usually the key to sustainable returns in the stock market, but it doesn't always win. With shares down by an eye-watering 98% since hitting the market with an initial public offering (IPO) in 1999, Plug Power (PLUG +0.64%) is an excellent example of this strategy gone wrong. But could the perennial loser be poised for a comeback?
Two-and-a-half decades after the company's initial public offering, some analysts think its hydrogen fuel cell technology may soon be ready for primetime. And warehouse giants like Amazon and Walmart are beginning to take notice. Will Plug Power finally start rewarding its long-suffering investors?
Let's dig deeper to see if the stock has millionaire-maker potential.
NASDAQ: PLUG
Key Data Points
What is hydrogen fuel cell technology?
Hydrogen is a key ingredient in water, natural gas, and all living matter, making it the most abundant element in the universe and a potential source of practically limitless energy if its power can be harnessed to fuel everything from cars to private homes.
But while the possibilities are massive, the practical realities will be challenging. Hydrogen will have to compete with a slew of green energy alternatives, many of which are receiving much more capital and government support.
Plug Power hopes to help change the narrative. The New York-based company aims to build a vertically integrated green hydrogen system where it will produce the element, turn it into usable energy via fuel cells, and deliver it to clients across North America and Europe.
While Plug Power has underperformed for decades, the last few quarters have started to look interesting for new investors. By now, the company has deployed over 72,000 fuel cell systems and 275 fueling stations across the world. It also boasts some well-known clients.
In 2022, Plug Power signed an agreement with Walmart to supply liquid green hydrogen (this is hydrogen that was produced without generating greenhouse gas emissions) for 9,500 of the retailer's lift trucks in its distribution centers.
The company has a similar deal with Amazon, where it is supplying enough green energy to power 30,000 forklifts. While it is unclear if either company gains any financial benefit from using hydrogen fuel, it plays a role in their plans for carbon neutrality by 2040.
Can Plug Power become a viable business?
While large companies may experiment with novel energy techniques as a way of "greenwashing" their public image, it probably isn't the strongest foundation for a scalable business model. Hydrogen fuel will probably need substantial government support to break into the mainstream. Unfortunately, things seem to be going in the opposite direction.
In August, Bloomberg expressed doubts about the industry's future in the U.S. after the Trump administration slashed funding and subsidies for clean energy products initiated during the Biden administration.
Image source: Getty Images.
As it stands, green hydrogen technology is not cost-effective compared to dirtier alternatives because of the complexities involved in producing and transporting it to end users. While technological improvements will alleviate these challenges over time, Plug Power may find itself at the mercy of fickle government policy and the public relations priorities of businesses that may shift over time away from green energy.
Is Plug Power a millionaire-maker stock?
With a market cap of just $3.3 billion operating in a cutting-edge new technology, Plug Power is capable of multibagger returns based solely on speculative factors like potential hydrogen technological breakthroughs or favorable government policy shifts.
That said, from a strictly fundamental perspective, the stock remains an incredibly risky bet. While second-quarter revenue increased 21% year over year to $174 million, Plug Power is far from profitability, with an operating loss of $176.9 million, mainly due to huge overhead operating expenses.
Management spent a whopping $87.9 million on selling, general, and administrative costs (this includes office salaries) compared to just $12.2 million on research and development, which is not very encouraging for a company trying to pioneer such a complex technology. Investors should stay far away until Plug Power gets its finances in order.
