Plug-in power supply (NASDAQ: PLUG)a developer of hydrogen fuel cell systems, went public in October 1999 near the height of the dot-com bubble. The stock reached an all-time high of $1,498 per share on March 10, 2000, representing a nearly tenfold gain from its price. reverse split-adjusted initial public offering (IPO) price of $150, but now trades at around $3.
Plug Power’s stock crashed when the dot-com bubble burst, growth slowed and further losses were incurred. The delayed submission of the 2020 annual report, a messy restatement of all financial figures for 2018 and 2019, a series of investor class action lawsuits and high interest rates have all exacerbated these pressures.
But after that steep decline, Plug Power shares are trading at just twice this year’s sales. Could this hated stock deliver profits for millionaires in the future?
The business model still looks shaky
Plug Power generates the majority of its revenue from sales of hydrogen fuel cell systems for electric forklifts, automated guided vehicles and ground support equipment. Its largest customers include: Amazon And Walmartboth of which are testing hydrogen forklifts in their warehouses and fulfillment centers.
Today, Plug Power is the largest consumer of liquid hydrogen in the world and has deployed more than 69,000 fuel cell systems and 250 fuel stations. It also builds stationary hydrogen network solutions for telecom, data center, transportation and utility companies, and sells electrolysis systems for creating modular hydrogen generators, liquefaction systems for the production of liquid hydrogen and various types of hydrogen storage and transportation equipment.
The company has carved out its own niche in the emerging hydrogen charging market, but has not yet proven that its business model is sustainable. Sales rose 40% in 2022 and 27% in 2023, but analysts expect only 4% growth this year. Meanwhile, operating margins are plummeting and net losses are widening at an alarming rate.
|
Metric |
2021 |
2022 |
2023 |
|---|---|---|---|
|
Turnover (in millions) |
$502 |
$701 |
$891 |
|
Operating margin |
(87%) |
(97%) |
(151%) |
|
Net profit/loss (in millions) |
($460) |
($724) |
($1,370) |
Data source: Plug-in power supply.
It is heavily dependent on Amazon and Walmart
Another problem is Plug Power’s overwhelming dependence on Amazon and Walmart. To initially secure these two large retail customers, the company granted them stock warrants (options to purchase more shares of the company at a discount) to subsidize the fuel cells they purchased. This unusual strategy backfired in 2020, as stimulus costs offset customer payments and left the company with a negative net sales of $93 million.
But on the other hand, Amazon has still acquired all of its shares and Walmart has still acquired almost all of its shares at the end of 2023. So for now, both retailers are still heavily invested in Amazon and should remain their 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 these deals would support its goal of generating $3 billion in revenue by 2025. The analysts are not nearly 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 – while reducing its annual net loss to $431 million.
It won’t make a profit for millionaires
It’s been nearly a quarter-century since Plug Power’s public debut, but the company still hasn’t proven its business model is sustainable. The company still burns money on every fuel cell system it sells, it relies too heavily on money-losing deals with Amazon and Walmart, and it has increased its share count by as much as 220% over the past five years to offset its stock-based compensation. raise fresh money through secondary offers.
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 shares and take on more debt to scale its operations. It recently secured a new $1.66 billion loan from the U.S. Department of Energy (DOE) to build six green hydrogen production facilities, but that debt will nearly double its total obligations. That messy balance sheet should prevent the bulls from retreating if rates remain 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 revenue growth, diversifies its customer base and limits losses. Even if it ticks all the boxes, I would expect the stock to only double or triple in the coming years, but it won’t generate profits for millionaires.
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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 in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
Is Plug Power Stock a Millionaire Maker? was originally published by The Motley Fool
