Plug in the power (NASDAQ: CAP)a developer of hydrogen fuel cell systems, went public near the peak of the dot-com bubble in October 1999. Its stock reached an all-time high of $1,498 per share on March 10, 2000, representing an gain almost tenfold compared to its price. Reverse split-adjusted initial public offering (IPO) price of $150, but it now trades at around $3.
Plug Power’s stock crashed when the dot-com bubble burst, its growth slowed and it racked up more losses. The late filing of its annual report for 2020, a messy restatement of all its financial statements for 2018 and 2019, a series of class action lawsuits from its investors and high interest rates have all exacerbated this pressure.
But after this sharp decline, Plug Power’s stock is trading at only 2 times this year’s sales. Could this hated title generate become a millionaire gains in the future?
Its economic model still seems fragile
Plug Power generates most of its revenue by selling hydrogen fuel cell systems for electric forklifts, automated guided vehicles and ground support equipment. Its largest clients include Amazon And Walmartboth of which are testing hydrogen forklifts in their warehouses and distribution centers.
Today, Plug Power is the world’s largest buyer of liquid hydrogen and has already deployed more than 69,000 fuel cell systems and 250 fueling stations. It also builds stationary hydrogen network solutions for telecommunications, data center, transportation and utility customers, and sells electrolyzer systems to create modular hydrogen generators, liquefaction systems for produce liquid hydrogen and various types of hydrogen storage and transportation equipment.
The company has carved out its own niche in the burgeoning hydrogen charging market, but it has yet to prove its business model is sustainable. Its turnover increased by 40% in 2022 and 27% in 2023, but analysts expect growth of only 4% this year. Meanwhile, its operating margins are collapsing and its net losses are widening at an alarming rate.
Metric | 2021 | 2022 | 2023 |
|---|---|---|---|
Turnover (in millions) | $502 | $701 | $891 |
Operating margin | (87%) | (97%) | (151%) |
Net income/loss (in millions) | ($460) | ($724) | ($1,370) |
Data source: Plug Power.
It relies heavily on Amazon and Walmart
Another problem is Plug Power’s overwhelming dependence on Amazon and Walmart. To initially secure these two large retail customers, it gave them stock warrants (options to buy more of the company’s stock at a discount) to subsidize the fuel cells they purchased. This unusual strategy backfired in 2020, as the costs of his incentives offset his customer payments and caused him to declare a negative net income of $93 million.
But the bright side is that Amazon still acquired all of its shares and Walmart acquired almost all of its shares by the end of 2023. So for now, both retailers are still heavily invested in its business and are expected to remain its main customers. In 2022, Amazon and Walmart both signed new agreements with Plug Power to obtain more liquid green hydrogen for their forklifts.
At the time, Plug Power said the deals would support its goal of generating $3 billion in revenue by 2025. Analysts disagree. almost as optimistic. They expect Plug Power to generate just $1.43 billion in revenue in 2025 – which would still represent a compound annual growth rate (CAGR) of 27% from 2023 – as it reduces its annual net loss at $431 million.
This will not generate millionaire earnings
It’s been nearly a quarter century since Plug Power’s public debut, but it still hasn’t proven its business model is sustainable. It continues to spend money on every fuel cell system it sells, it relies too heavily on loss-making deals with Amazon and Walmart, and it has increased its stock count by 220% over the of the last five years to offset his stock-based compensation and raise new money through secondary offerings.
With just $173 million in cash and equivalents at the end of the first quarter of 2024, Plug Power will likely continue to dilute its stock and take on more debt to grow its business. It recently secured a new $1.66 billion loan from the U.S. Department of Energy (DOE) to build up to six green hydrogen production facilities, but that debt will nearly double its total liabilities. This messy balance sheet should prevent bulls from backtracking while interest rates remain elevated.
Plug Power won’t go bankrupt anytime soon, but I don’t think investors will pay a premium for the stock unless it stabilizes its sales growth, diversifies its customer base and cuts its losses. Even if it checks all the right boxes, I would only expect the stock to double or triple over the next few years – but that won’t generate any millionaire gains.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions at Amazon. The Motley Fool holds positions and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
Is Plug Power Stock a Millionaire Manufacturer? was originally published by The Motley Fool
