Plug Power (PLUG -4.93%), a developer of hydrogen fuel cell systems, went public near the peak of the dot-com bubble in October 1999. Its stock hit an all-time high of $1,498 per share on March 10, 2000, representing a near-tenfold gain from its reverse split-adjusted initial public offering (IPO) price of $150, but it now trades at about $3.
Plug Power's stock crashed as the dot-com bubble burst, its growth slowed, and it racked up more losses. The delayed filing of its annual report for 2020, a messy restatement of all of its financials for 2018 and 2019, a series of class action lawsuits from its investors, and high interest rates all exacerbated that pressure.
But after that steep decline, Plug Power's stock only trades at 2 times this year's sales. Could this hated stock generate millionaire-making gains in the future?
Image source: Getty Images.
Its business model still looks shaky
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 customers include Amazonand Walmart, which are both testing out hydrogen-powered forklifts in their warehouses and fulfillment centers.
Today, Plug Power ranks as the world's largest buyer of liquid hydrogen, and it's already deployed more than 69,000 fuel cell systems and 250 fueling stations. It's also building stationary hydrogen grid solutions for telecom, data center, transport, and utility customers, and it sells electrolyzer systems for creating modular hydrogen generators, liquefaction systems for producing liquid hydrogen, and various types of hydrogen storage and transport equipment.
The company has carved out its own niche in the nascent hydrogen charging market, but it hasn't proven that its business model is sustainable yet. Its revenue rose 40% in 2022 and 27% in 2023, but analysts anticipate just 4% growth this year. Meanwhile, its operating margins are plummeting and its net losses are widening at an alarming rate.
Metric | 2021 | 2022 | 2023 |
|---|---|---|---|
Revenue (in millions) | $502 | $701 | $891 |
Operating margin | (87%) | (97%) | (151%) |
Net income / loss (in millions) | ($460) | ($724) | ($1,370) |
Data source: Plug Power.
It's heavily dependent on Amazon and Walmart
Another issue is Plug Power's overwhelming dependence on Amazon and Walmart. To initially secure those two big retail customers, it granted them stock warrants (options to buy more shares of the company at a discount) to subsidize the fuel cells they bought. That unusual strategy backfired in 2020 as the costs of its incentives offset its customer payments and caused it to report a negative net revenue of $93 million.
But on the bright side, Amazon still vested all of its shares and Walmart vested nearly all of its shares by the end of 2023. So for now, both retailers are still heavily invested in its business and should remain its top customers. In 2022, Amazon and Walmart both signed new deals with Plug Power to secure more liquid green hydrogen for their forklifts.
At the time, Plug Power claimed those deals would support its goal of generating $3 billion in revenue by 2025. The analysts aren't nearly as optimistic. They expect Plug Power to only generate $1.43 billion in revenue in 2025 -- which would still represent a compound annual growth rate (CAGR) of 27% from 2023 -- as it narrows its annual net loss to $431 million.
It won't generate millionaire-making gains
It's been nearly a quarter of a century since Plug Power's public debut, but it still hasn't proven its business model is sustainable yet. It's still burning cash on every fuel cell system it sells, it relies too heavily on loss-leading deals with Amazon and Walmart, and it's increased its share count by a whopping 220% over the past five years to offset its stock-based compensation and raise fresh cash through secondary offerings.
With only $173 million in cash and equivalents at the end of the first quarter of 2024, Plug Power will likely continue diluting its shares and taking on more debt to scale up 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. That messy balance sheet should prevent the bulls from rushing back as interest rates stay high.
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 narrows its losses. Even if it checks all of the right boxes, I'd only expect the stock to double or triple over the next few years -- but it won't generate any millionaire-making gains.
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 in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
