Plug Power Stock: Buy, Sell or Hold?

Power outlet (PLUG 4.25%) was considered a promising play in the nascent hydrogen fuel cell market when it went public in 1999. But today, it trades nearly 99% below its initial public offering (IPO) price. Many of its investors pulled out after the dot-com bubble burst in 2000; his growth cooled; and struggled with accounting issues from 2018 to 2020.

That was a devastating discount for long-term investors in Plug, but its stock now trades at just twice this year’s sales. Let’s look at its business model and see if it’s the right time to buy, sell or own this underdog hydrogen stock.

Image source: Getty Images.

Understanding the Plug Power business

Plug Power generates most of its revenue from its hydrogen infrastructure solutions and GenDrive hydrogen fuel cell systems. Its two biggest customers are Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT)which is installing both of its hydrogen fuel cells in forklifts and other ground equipment to reduce its long-term fuel costs.

Plug has already deployed more than 69,000 fuel cell systems and 250 fueling stations worldwide and is the world’s largest single buyer of liquid hydrogen. It also develops stationary hydrogen grid solutions and sells modular hydrogen generators, liquefaction systems, hydrogen storage solutions and transportation equipment.

What challenges does Plug Power face?

Plug Power’s biggest challenge has been the slow adoption of hydrogen power as an alternative to fossil fuels or battery-powered electric systems. Hydrogen costs more to produce than oil or natural gas, and hydrogen charging stations are much more expensive to build than grid-based electric charging stations.

That’s why Plug has evolved from its initial plan to develop hydrogen-powered residential systems to forklifts for warehouses and delivery centers. But to lock in Amazon and Walmart as its main customers, Plug actually subsidized its fuel cell sales to the two retailers with stock guarantees — or options to buy more stock at a discount.

That deal made Amazon and Walmart major investors in Plug, but it also caused accounting problems when the costs of those incentives eclipsed payments to its customers. Plug didn’t properly disclose the losses from those incentives, so it had to go back and redraw all of its financial statements at the end of 2020 for the last three years. Following these restatements, its reported annual revenue effectively turned negative in 2020.

How Fast Does Plug Power Grow?

Plug’s revenue eventually grew again from 2021 to 2023, but most of that growth was driven by two acquisitions that expanded its cryogenic equipment segment. That inorganic growth offset softness in its core hydrogen fuel cell business, which struggled as headwinds dampened market appetite for new hydrogen charging projects. But the costs of buying and integrating those new businesses drove up its operating and net losses.

Data source: Plug Power.

Plug’s revenue fell 44% year over year in the first half of 2024 as those headwinds persisted, but its electrolyser, cryogenics and material handling segments are expected to expand and and stabilize growth in the second half of the year. For the full year, the company expects its revenue to fall between 7% and 4%. Analysts expect a 5% drop to $847 million as it narrows its net loss to $893 million.

But from 2023 to 2026, Plug Power’s revenue is expected to grow at a compound annual growth rate (CAGR) of 26% to $1.77 billion as it narrows its annual net loss to $336 million . Plug had just $62 million in cash and cash equivalents at the end of the second quarter of 2024, but recently secured a new $1.66 billion loan from the US Department of Energy (DOE) to build up to six new hydrogen green energy production units.

However, that loan will also double its liabilities to $3.45 billion and increase its debt-to-equity ratio to nearly 1.2. Plug has also significantly increased its number of shares outstanding by 270% over the past five years with its secondary offerings, warrants and share-based compensation expenses.

That continued dilution, rising debt and red ink could make the stock unattractive to own in this high-interest environment. That’s probably why 26% of its shares were still shorted at the end of July.

Is It Time to Buy, Sell or Hold Plug Power Stock?

Plug Power’s stock looks cheap, and the DOE loan should keep its business alive for at least a few more years, but there’s no compelling reason to buy or hold its stock right now. They rely too much on Amazon and Walmart; tries to boost its sales with margin-crushing acquisitions; and has not demonstrated that its business model is sustainable. So for now, I would definitely sell or avoid Plug Power until they address these long-term concerns.