Plug in the power (NASDAQ: CAP) the stock has been on a roller coaster. In 2020, the stock suddenly soared, rising 60-fold in value. However, over the next few years, the stock gave up almost all of those gains.
With a history of huge runs followed by big losses, it’s fair to wonder: What will happen to Plug Power stock over the next five years?
This is what management wants you to think
Plug Power presents itself as a bet on clean energy. Globally, more than $1.7 trillion has been invested in clean energy projects in 2023. This is nearly double the annual investment in fossil fuel production. Plug Power’s management team wants investors to view the company as a key beneficiary of this huge and growing market.
The pitch is simple: a clean energy world will require the production, transportation and consumption of low-carbon fuel sources. According to Plug Power, one of those fuel sources will be hydrogen.
Hydrogen fuel has a long history. In 1949, an English engineer named Francis Bacon developed one of the first types of fuel cells. In the 1960s, NASA invested heavily in hydrogen fuel cells, leading to several commercial innovations. Today, the technology is being tested and deployed in trains, submarines, heavy trucks and even consumer vehicles.
Hydrogen fuel can be produced in several ways. Today, the main method uses natural gas, while others use mainly renewable energy. Plug Power focuses on the latter and promises to help replace a world built on fossil fuels with broad access to clean hydrogen.
To this end, the company has invested more than $1 billion in hydrogen infrastructure. Plug Power now has more than 1 million square feet of manufacturing capacity, with several pilot projects underway, including one with a protein specialist. Tyson Foods which replaced some of its battery-powered forklifts with fuel cells.
With increased manufacturing capabilities, Plug Power promises to bring scale to this nascent industry, reducing the cost of adoption. Following its pilot projects, the company estimates it can increase its revenues to nearly $20 billion over the next five years.
With a market cap of just $2.5 billion, Plug Power stock would surely skyrocket if these predictions come true. How High Could Stocks Go? Currently price/sales ratioPlug Power stock would theoretically be worth more than 25 times its current value if management’s revenue targets were met.
Prepare yourself for this harsh reality
Most management teams view their business through rose-colored glasses. Plug Power is no exception.
Is the company focused on clean energy? Yes. Is investment in clean energy booming? Yes. Could hydrogen fuel cells be part of the global energy transition? Of course. But all of this doesn’t mean that Plug Power doesn’t face serious challenges in the near term.
The first challenge is beyond Plug Power’s control: Hydrogen fuel simply isn’t economically viable right now, and there’s no guarantee it ever will be on a large scale. Some estimates do not predict clean hydrogen to be economically competitive with natural gas until 2040.
Of course, new carbon taxes and other regulations could change this at any time. And perhaps a new technological advance will cause the price of hydrogen to fall. Still, those are big ifs, and there’s no guarantee that Plug Power will be the beneficiary.
The second challenge is more personal: Plug Power is running out of money.
To realize its bold plans, Plug Power will need billions of dollars in additional capital. So far, the company has heavily diluted shareholders by selling more shares to close its funding gap. The company just announced another billion-dollar stock sale that will likely result in even greater shareholder dilution, a common theme at Plug Power.
There is still hope for the company. It recently moved forward on a $1.6 billion loan from the U.S. Department of Energy and began fulfilling customer orders from a new factory in Georgia. But make no mistake: Plug Power is living on borrowed time.
So where will Plug Power stock be in five years?
Potential outcomes vary widely.
The company could face insolvency, which would reduce the stock price to zero. Alternatively, he might be able to fill the funding gap through stock sales and emergency loans, living long enough to ride a potential wave of interest in hydrogen fuels. This alternative future would likely be good for the stock price in the long term, but betting on a stock like Plug Power right now is just that: a gamble.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
Where will Plug Power stock be in 5 years? was originally published by The Motley Fool
