Based on how investors have bought shares of Plug Power (NASDAQ:PLUG), they are all expecting very big things coming down the road rather soon. So far this year, the company has been taking steps in the right direction by securing several large orders for its fuel cell systems as well as starting to convert those orders into strong revenue growth. To keep this momentum up, though, it will require something else: Spending. Let's take a look at how Plug Power has been spending its money over the past few years to see if its spending habits point to a company that can continue to grow at this years breakneck pace or is at risk of stalling in a couple years. 

A more holistic approach to capital spending

When you have a company like Plug Power that is looking to develop a new method for energy storage and use, it's going to take a lot of money in research and development. However, these kind of expenses aren't accounted for in the capital expenditures of the company. At the same time, though, to make money the company also needs to manufacture products, which means that investments in facilities and equipment are just as critical to the future of the company.

One way that we can account for all of these things as well as include the wear and tear of normal business operations is to look at the adjusted net capital expenditures, which considers the tangible and intangible investments a company needs to make in order to grow as well as the wear on the business through depreciation. A rough rule of thumb is if a company's adjusted net capital expense is positive then its spending to grow, where a negative net capex might suggest that the company is not doing enough to keep up the momentum.

Plotting Plug Power's Spending

As you might expect, the majority of Plug Power's spending has been related to research and development. Not only does it need to put the money into its hydrogen fuel cell systems to make them economical, but in previous years the company did pull in revenue through some research and development contracts. With that in mind, here is how Plug Power has been spending its money since 2009 based on the figures in its financial statements, compiled by S&P capital IQ.

Plug Adjusted Net Capex

Source: S&P Capital IQ, authors calculations

Slowly but surely since 2009, Plug Power's revenue mix has drifted away from the research and development contracts and more toward the actual sale of its products, so nobody should be alarmed by the significant drop in R&D spending over the past 5 years. Also, as the company's product becomes commercially viable, R&D spending is not as critical as it had been in the more nascent stages of the technology.

One thing that does stand out, though, is that the company has not made any significant capital expenditures since 2011. This is a company that is hoping to grow by leaps and bounds in the next 5 years as it makes hydrogen fuel cells a viable alternative to many small scale power applications. To meet those expectations, it will require some capital to expand production capacity as well as to expand its service operations. According to the company's most recent annual report, though, it anticipates that its current manufacturing facilities are adequate enough to accomodate its expected increased produciton over the next two years. So this doesn't look to be a pressing issue any time soon, but in a couple of years it's very possible it will need to make some significant investments in new manufacturing facilities.

What a Fool Believes

Plug Power is trying to make the transition from a company developing a viable hydrogen fuel cell system to one that can now manufacture these cells at scale and start to actually generate a profit from them. Some of the key building blocks are starting to fall into place to make this happen. Orders from major customers are coming in and they are making repeat purchases, and sales are growing at a fantastic rate. To maintain this momentum and hopefully move toward profitability, the company will not be able to keep capital spending to the bare bones levels it has over the past few years. Hopefully, when the time comes to make those business investments, it will be generating some profits so it doesn't need to tap the equity markets again to meet its budgetary needs.

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. 

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