Plug Power (NASDAQ:PLUG) has had a long and unsuccessful run on the capital markets. Plug stock started trading in 1998 around $120 per share (split-adjusted) and ran up to as high as $1,500 per share over the next couple of years.

But the price collapsed shortly thereafter and has never recovered. Shares dropped under $10 in 2008, and PLUG stock would fall to as low as 13 cents earlier this decade. In 2014, PLUG stock briefly spiked to $10, but that rally failed as well and shares are back down to $2 now.

This is a classic sort of boom and bust trading pattern of many small NASDAQ companies. They labor on for many years, hoping to commercialize some new or improved technology with limited success.

Plug Power fits the mold. It has been able to generate a fair amount of revenue over the years. But it has never reached a point of achieving consistent profits; in general, its margins have been too low for the business to ever take off.

Huge Ongoing Losses

Despite scaling up its revenues dramatically, there is little evidence that Plug Power is about to become a viable profitable business. From 2013 to 2018, Plug Power has increased its revenues from $25 million to $175 million. Gross profit, however, only flipped from a small loss to a gain of $2.6 million in 2018.

Normally, if revenues go up sevenfold, you’d expect it to do more for your profit margins. Making $2.6 million in profit on your goods sold off of $175 million is rather lackluster.

The company spends about $40 million per year on overhead. On top of that, it is spending around $30 million per year on R&D. Thus, while it only makes a gross profit of less than $3 million, it has more than $70 million in other costs that it has to fund each year to keep the business operating and competitive.

Throw in more expenses, such as interest on the company’s rising debt load, and annual losses approach $100 million per year. This figure has been spiking upward recently, even as revenues have gone up dramatically.

As such, there’s simply not much evidence that Plug Power’s current business model is anywhere close to a trajectory needed to eventually become a solid business for PLUG stock owners.

Hydrogen Still Is an Issue for Plug Power

There are niche markets where hydrogen fuel cells are already practical products with viable use cases. But much of the enthusiasm for this sort of stock comes from the idea that hydrogen is going to go mainstream. Some folks, such as the people who publish Capitalist Exploits suggest that hydrogen is about to take off.

They say hydrogen stocks will boom over the next five to ten years and investors have to get in now before the market surges.

I don’t buy their argument. If you read the full report, much of it is about the potential for future hydrogen fuel cell usage in mass markets such as transportation vehicles. But this market has already existed, to a limited extent, for the past decade and is showing little sign of reaching an inflection point now.

If anything, electric vehicles are making it harder for hydrogen to take off. How many alternatives to internal combustion engine vehicles is the market going to support at once?

It’s worth considering that we’ve seen this movie before. A decade ago, billionaire Boone Pickens heavily pushed natural gas-powered vehicles. The Clean Fuels (NASDAQ:CLNE) company was a multi-billion market cap outfit that intended to take natural gas cars mainstream. It didn’t work out, however. Despite natural gas fuel being both cheaper and cleaner than gasoline, the savings weren’t sufficient to cause a mass shift.

Hydrogen faces many more obstacles than natural gas did in trying to go mainstream. Hydrogen is more dangerous – see this station blowing up recently, for example, which led Toyota (NYSE:TM) to stop selling its hydrogen models. Stations using hydrogen cost much more to build than gas stations or electric charging facilities. And outside of a few markets like California, there isn’t enough hydrogen infrastructure in place. PLUG stock could get a big boost if hydrogen vehicles get popular. But I’d bet heavily that they won’t over the next few years.

PLUG Stock Verdict

Competitor FuelCell Energy (NASDAQ:FCEL) got rid of its CEO and hired a restructuring firm earlier this month. That strongly implies the possibility that FuelCell will be going bankrupt shortly. That’s even with them announcing a new deal with ExxonMobil (NYSE:XOM) recently. FCEL stock is down to 22 cents, and has lost 99% of its value over the past year.

FuelCell’s collapse has served as another reminder of the difficulty of taking hydrogen mainstream. There’s a huge difference between having a cool technology that works in a lab, and having something that you can sell in the mass market profitably.

Now, Plug Power isn’t about to follow FuelCell’s path. At least not yet. Plug Power’s market cap is still over $500 million, meaning that it has plenty of ability to keep issuing new shares to fund its ongoing losses. Still, one must wonder how long the market will keep tolerating Plug Power’s unending string of massive cash burn.

After twenty years on the public markets, it’s increasingly hard to think that the company’s business model will ever turn into a significant success for its shareholders.

At the time of this writing, Ian Bezek owned XOM stock. You can reach him on Twitter at @irbezek.