Plug Power
My question is this: What in the heck are investors so excited about? Sure, Plug can use cash, because it's been burning it at a rate of $35 to $40 million a year for the past few years. But it's not like it needed the money now. As of December 2005, the end of its last fiscal year, it still had nearly $100 million in cash and short-term investments, enough for two or three years' worth of operation at the recent rates. Plug management says the money will position the company to "accelerate and broaden our business strategy." The problem with that strategy, of course, is the whole money-burning thing.
This looks like good old overreaction from a market that's always eager for a reason to hop on the "alternative energy" bandwagon. (What's the over/under on a Cramer "Booya!" tonight?) Never mind, of course, that there's nothing really new or alternative about fuel cells. They've been around for decades, and, contrary to popular belief, the hydrogen which runs them isn't delivered by the clean-energy fairy in the dead of night. It comes from fossil fuels.
I'll grant Plug's argument that fuel cells might offer some sort of (eventual) cost savings or logistical benefit for certain applications -- like the telecom markets that are Plug's current target -- but overly enthused investors ought to direct themselves to the financials. Plug's latest conference call touts its materials-cost reductions and (unspecified) labor-cost reductions as major improvements, but that doesn't change the gross reality. Margins remain dismally negative from the top line on down, and the ink only gets redder from there.
Meanwhile, the share count continues to balloon. Plug's work with Honda
So while this might be a decent deal for a cash-hungry Plug Power, I'm not sure much has changed for outside shareholders. They're stuck with the same money-burning company that's engaged in a race to market a solution to problems that may or may not really exist. (Ye olde diesel backup generator may not be sexy, but people know how it works. And solar and wind are real alternatives to fossil fuels.)
As for today's bump in share price, I'm confident that this too shall pass. Investors in last year's fuel-cell darling, HokuScientific
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Seth Jayson reminds you not to invest like a venture capitalist, because you are not one. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
