Should One Buy, Sell, or Hang onto Plug Power Shares?
Should One Buy, Sell, or Hang onto Plug Power Shares?
PLUG Power (PLUG up by 11.30%) is on a quest to provide eco-friendly energy through its innovative fuel cells. The company aims to profit from the expanding renewable energy market using its hydrogen tech. Estimates by Deloitte Consulting suggest the green hydrogen market could reach a staggering $1.4 trillion by 2050, potentially offering Plug Power substantial growth opportunities.
Despite these promising prospects, Plug Power has encountered various obstacles in recent times. After reaching a high of $75 per share in 2021, the stock plunged 97% and hasn't recovered since then. Potential investors should consider the following factors.
Motives to buy or hold PLUG Power
PLUG Power aims to carve out a niche in the evolving renewable energy field using hydrogen fuel cells. These cells offer an eco-friendly, powerful energy source that emits minimal carbon emissions, making them a viable alternative to traditional batteries.
The company manufactures products that harness electrolysis to produce hydrogen from water, creating an eco-friendly fuel source. PLUG Power's advanced liquefaction and cryogenic systems make hydrogen storage and transportation highly efficient, enabling its use in numerous applications.
The GenDrive system, for instance, is a hydrogen-powered fuel cell engineered for use in material-handling vehicles like forklifts. PLUG Power's GenSure system focuses on delivering reliable backup and grid support power, ensuring uninterrupted operation of vital infrastructure during widespread outages.
Big industry players, such as Amazon and Walmart, are among PLUG Power's customers and investors, potentially providing a steady revenue stream and long-term growth possibilities. With the backing and investment of major companies, PLUG Power may capitalize on the expected surge in hydrogen demand, according to McKinsey estimates, which could rise two to four times by 2050.
The long-term growth potential makes PLUG Power stock appealing, but its financial health is crucial to monitor.
Reasons to offload PLUG Power
PLUG Power has demonstrated remarkable revenue growth in recent years, with a 27% increase in 2021 to $891 million. However, the current financial situation paints a different picture. In the first nine months of 2024, revenue dropped to $437 million, representing a 35% decline compared to the previous year.
This dip can primarily be attributed to PLUG Power's struggles with hydrogen infrastructure sales. During the current year, just 11 hydrogen site installations were completed, in contrast to the 41 installations from the previous year. This reduction highlights the slower-than-expected development of the hydrogen economy.
Furthermore, PLUG Power confronts escalating losses. As of Sept. 30, the company reported an operating loss of $720 million, slightly more than the $718 million loss from the previous year. Over the past 12 months, PLUG Power's total losses reached an astonishing $1.4 billion.
To address these challenges, the company initiated cost-cutting measures and hired Dean Fullerton as the new COO. Fullerton, boasting experience in engineering services for Amazon across various regions, is expected to boost operational efficiencies and refine the supply chain.
Management has revised its revenue projections for the imminent year, estimating between $850 million and $950 million – far lower than its previous expectations of $1.5 billion.
On a more optimistic note, the Department of Energy (DOE) granted PLUG Power a conditional loan of $1.66 billion in May to finance the construction of six clean hydrogen plants. These facilities will produce hydrogen intended for use by clients within various sectors, including material handling, transportation, and industry.
However, with political dynamics shifting, particularly with the Trump Administration's anticipated inauguration in January, CEO Andy Marsh aims to secure this loan before the transition. Failure to do so could pose significant challenges for the company, currently grappling with cash flow difficulties.
Buying, holding, or selling PLUG Power?
PLUG Power's technology could contribute to the advancement of the renewable energy sector. However, its financial situation remains fragile due to declining revenue and disappointing future projections. Many experts anticipate that PLUG Power may not become profitable until 2028.
If you're captivated by PLUG Power's technology and future potential, it might be a stock worth monitoring over time. I would like to observe improved sales and cost reductions that enhance operational efficiency before making a decision. Given the uncertainties ahead and PLUG Power's lack of financial success, I would currently recommend selling the stock.
Investors looking to capitalize on the growth potential of the green hydrogen market might consider investing in PLUG Power, given its innovative fuel cell technology and backing from major companies like Amazon and Walmart. However, due to the company's financial struggles, including declining revenue and substantial losses, potential investors should proceed with caution and closely monitor PLUG Power's financial health and progress in overcoming its hurdles.
With the Trump Administration's anticipated inauguration in January, securing the DOE loan for the construction of six hydrogen plants becomes crucial for PLUG Power's financial stability and future growth prospects. Successfully securing this loan could provide a turnaround and improve the company's financial performance, potentially making it an attractive investment opportunity in the long term.