Plug Power Analysis: Why PLUG Stock Is Just a Massive Cash-Burn Machine
Plug Power (NASDAQ:PLUG) stock is a dicey proposition. The company has never made a profit. In 25 years of business, the hydrogen fuel cell maker has failed to make any money whatsoever for itself, let alone for investors.
No matter how much cash has been pumped into the business, Plug Power has failed to generate any meaningful business. Even though it recently announced a billion-dollar conditional loan guarantee from the Energy Dept. that helped send shares soaring it failed to hold onto any of the gains.
It shows how little faith the market has in PLUG stock. You shouldn’t have any faith either. Stay away from this money pit and if you own shares, sell them now.
A Conditional Surrender
Coinciding with meme stock legend Roaring Kitty’s return to social media in May, Plug Power announced it received a letter from the U.S. Department of Energy that it would help “finance the development, construction and ownership of up to six green hydrogen production facilities” through a conditional loan guarantee worth $1.66 billion.
Green hydrogen is a clean energy source that is produced by using renewable electricity, such as from wind and solar power, to split water into hydrogen and oxygen through electrolysis. The benefit is it emits zero carbon dioxide in the process.
Plug Power wants to position itself as the sole vertically integrated green fuel stock in the industry. Unfortunately, the company’s history does not inspire confidence.
Moreover, because it is an end-to-end provider, Plug Power stock has been crushed by the high interest rate environment it operates in.
Yet because of the highly capital intensive nature of providing the technology and the infrastructure itself, the cost of building it out becomes quite expensive when interest rates are at historically high levels.
Seeing Red Over Squandered Greenbacks
That’s why Plug Power touted the loan guarantee from Energy as it would offset the cost. But investors shouldn’t put much stock in it.
As even Plug noted, this is a conditional guarantee. Before Plug can receive any funds, it must first meet “certain technical, legal, environmental and financial conditions, including negotiation of definitive financing documents.” In short, there is no guarantee Plug Power will get a dime.
In the meantime, the hydrogen stock will continue to burn cash. Shareholders will also continue to be diluted. The company has a horrible record of raising cash through stock sales and then squandering it on projects that never make a profit.
After Plug Power stock soared on the loan guarantee letter (or the return of the meme stock trade), it subsequently announced that certain shareholders would exercise warrants relating to almost 3.5 million shares.
Over the past five years, PLUG’s shares outstanding have more than tripled. During the 2021 meme stock frenzy, it increases the total by nearly 30%.
While its cash and equivalents exploded to $4.3 billion from less than $500 million at the start of the year, Plug Power has spent it all. At the end of the first quarter it had less than $173 million available.
Letting the Air Out of PLUG Stock
Of course, despite spending over $4 billion in four years time, the green hydrogen company did not produce any profits. It is still producing losses, losses that are widening.
At the end of the first quarter operating losses grew 23% to $259 million. Three years ago Plug reported an operating loss of $48 million.
Why should any investor believe Plug Power will spend $1.66 billion in loan guarantees any more efficiently than it has in the past? While its goal of renewable energy and being a vertically integrated green fuel stock is a notable one, Plug Power stock hasn’t proved at all it is worth investing in.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
