Should one Buy, Sell, or Hang onto Plug Power Shares?
Plug Power, represented by the ticker symbol PLUG (-7.73%), is on an impressive roll as per numerous metrics. Since the commencement of 2021, sales have skyrocketed an astounding 2,000%. The company is heavily invested in a sector with massive potential: hydrogen fuel.
It's understandable to maintain a hopeful outlook regarding Plug Power. However, does this glowing promise make it a wise investment decision? You might be shocked by the answer.
The Hydrogen Revolution: Is it Around the Corner?
Before delving into the stock, let's scrutinize what exactly Plug Power does. This company designs and manufactures hydrogen fuel-cell systems, a promising technology that could spearhead the world's transition away from fossil fuels.
Alternative power sources like wind and solar excel in generating electricity, particularly when coupled with backup storage options like utility-scale batteries. Yet, there are sectors considered challenging to decarbonize, such as industries requiring high heat levels, such as cement and asphalt production, or industries where weight is vital, like aviation.
In these scenarios, hydrogen offers a viable substitute, as it can be generated in an eco-friendly manner and boasts the energy density needed to power these hard-to-decarbonize sectors. Essentially, if the world aims to replace oil, coal, and gas with a clean energy alternative, hydrogen could prove to be a game-changer.
According to consulting firm McKinsey, "global clean hydrogen demand is projected to grow substantially to 2050, but infrastructure scale-up and technology enhancement are required to meet projected demand."
And here's where Plug Power shines. Founded in 1997, it's been designing hydrogen fuel systems for over two decades, boasting multiple successful pilot projects. Last week, the U.S. government granted it a $1.7 billion loan guarantee, underscoring hydrogen's significance for our future energy needs. Nevertheless, Plug Power's management has high expectations for the coming decades, but there's a catch.
Plug Power's Stocks: A Puzzle to Solve
While hydrogen holds great promise, it's not yet a cost-competitive alternative. However, advancements in technology and stricter regulations on fossil fuel usage may soon change this. However, a hydrogen-dominated future remains years – if not decades – away. This is a significant concern for Plug Power, which continues to post significant quarterly losses.
Over the past 12 months, the company has racked up a massive $1.4 billion in losses. Its current market capitalization is $2.2 billion, which means it could burn through its entire valuation in just 18 months at its current rate.
To stay afloat, management has aggressively pursued government grants and loan guarantees, just like the one secured last week. Additionally, the company has been consistently selling stock, heavily diluting its shareholders in exchange for financial stability.
In a nutshell, Plug Power is an intriguing company, but a terrible investment choice. A hydrogen-powered future may still be a long way off – but the current losses are a pressing reality. Unless there's a revolutionary transformation in regulations, expect the situation to remain unchanged for the foreseeable future.
The company will remain dependent on occasional subsidies and ongoing share sales to survive. Even if hydrogen's cost competitiveness sees a major improvement through technological advancements, that breakthrough may not benefit Plug Power if it's achieved by a competitor. With minimal available resources to divert towards research and development, the possibility of Plug Power's technology becoming obsolete is a genuine concern.
Is Plug Power an intriguing business worth monitoring? Without a doubt. However, is it a shrewd investment option at this time? Probably not.
Considering the company's substantial financial losses and reliance on government support and share sales, it might be prudent to think twice before investing in Plug Power's stocks, despite its promising role in the hydrogen revolution. As the shift towards a hydrogen-dominated future is still several years away, the current financial situation warrants caution.
In light of Plug Power's aggressive efforts to secure government funding and maintain shareholder value through dilution, it becomes essential to weigh the potential risks associated with investing in such a company that is heavily reliant on external resources and market conditions.