Plug Power (PLUG +1.97%) shares have had a strong year, as the hydrogen company has begun to demonstrate strong gross margin improvements. The company has struggled with negative gross margin throughout much of its history.
Let's dig into the company's recent first-quarter results and future prospects to see whether the stock's momentum can continue.
Image source: The Motley Fool.
Plug Power's transformation continues
Plug Power's primary business is making hydrogen fuel cells for forklifts and other material-handling equipment used in high-volume warehouses and distribution centers. With these sales, the company would typically provide the hydrogen fuel needed to power its fuel cells. However, it historically acquired the hydrogen from third parties and sold the fuel at a loss. This is not a sustainable business model, so it eventually started building its own network of hydrogen plants.
While it still isn't selling fuel at a profit, it saw a huge 54% improvement in its fuel margin in the quarter, helped by making its own fuel and getting more favorable third-party agreements. It also reduced service costs by 30% per unit. Overall gross margin improved from negative 55% a year ago to negative 13%.
Overall, Q1 revenue jumped 22% year over year to $163.5 million, helped by higher equipment and electrolyzer sales. Meanwhile, the company's adjusted loss per share improved from $0.17 a year ago to $0.08.
The company had operating cash flow outflows of $150 million for the quarter, while its free cash flow was negative $158.2 million. It ended the quarter with $223.2 million in unrestricted cash and $578.8 million in restricted cash. It is also expecting $275 million from asset monetization.
Plug Power is targeting revenue growth of 13% to 15% for the year. Meanwhile, it expects adjusted EBITDA (excluding stock-based compensation) to be positive in Q4.
NASDAQ: PLUG
Key Data Points
Is the stock a buy?
Plug Power has done a great job of improving its business after looking to be on the verge of bankruptcy a few years ago. While it's not out of the woods yet, it's on a more stable footing. However, it still needs to get to consistent positive gross margins and sustained operating cash flow to prove that this is a viable business.
Plug Power remains a highly speculative stock with a history of overpromising and underdelivering, so I would continue to keep any positions small and take profits on the way up.
