If you were watching shares of Plug Power (NASDAQ:PLUG) last month, you got all the reasons to love or hate the company. From the beginning of September to the midway point, the PLUG stock price jumped nearly 29%. But between Sept. 18 till the end of the month, shares dropped more than 14%.
For the bulls, they are attracted to the possibility that any news item, no matter how remote may drive up Plug Power stock. Conversely, the bears probably call PLUG easy money. Over the trailing five-year period, the equity has tanked 47%. More critically, each spike in market value has mostly met with quick failure.
So, why do investors continue to risk their money on the long-embattled organization? Because the PLUG stock price is down infinitely from its all-time highs, a return to glory would net untold riches. Psychologically, then, PLUG has a certain allure that taps into the speculative part of our brain.
But recently, Plug Power CEO Andy Marsh laid out a plan to hit $1 billion in revenue. Apparently, his team is gung-ho on the proposal. And some optimists might argue that a foundation exists for this audacious target.
For instance, InvestorPlace’s Vince Martin noted that major companies like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT) and Procter & Gamble (NYSE:PG) use PLUG’s fuel cell-powered forklifts. And perhaps most famously, DHL operates the alternative-energy specialist’s hydrogen-powered delivery vehicles. These big-name clients give PLUG Power stock the credibility it desperately needs.
That said, trailing 12-month revenue stands at just under $189 million. Has PLUG stock earned enough credibility to justify a shot? You should be cautious and here’s why:
PLUG Stock Can’t Beat Science nor Economics
We’re all familiar with the phrase, “if it ain’t broke, don’t fix it.” Unfortunately, this sentiment underlines the many risks behind Plug Power stock.
In order for hydrogen fuel cells to replace traditional energy sources, a compelling reason must exist. As Voro growth strategist and alternative energy expert Nicholas DiPreta told me via email, “what often isn’t mentioned is that hydrogen itself is extremely dangerous.”
As the Hindenburg disaster clearly demonstrated, the volatility of hydrogen is not a new threat. And to be fair, hydrogen-powered car manufacturers have emphasized the platform’s safety. However, high-profile incidents, including hydrogen-plant explosions at Santa Clara and Norway raise alarm. As DiPreta said to me, “For the relatively low levels of production for hydrogen, it is surprising that we have seen several recent incidents.”
Let’s set aside the possible safety issue for the underlying industry of PLUG stock. Cynically but truthfully, corporations’ biggest concern is money: does their endeavor make economic sense?
Here, DiPreta is more adamant that it doesn’t. He states that “it would be nearly impossible” to imagine a future where hydrogen-powered vehicles, as opposed to electric vehicles would take over the automotive landscape. Simply, “the purification level currently needed for hydrogen is prohibitively expensive.”
Even more problematic for the PLUG stock price, DiPreta is not alone in the cost assessment. In an email to me, Matthias Alleckna, energy industry analyst at EnergyRates.ca stated:
Although hydrogen fuel cell cars are pointed out as the future of the auto industry, these cars can still be quite expensive, whether at the time of purchase or their maintenance costs. The main obstacle for hydrogen fuel cell vehicles is the still expensive cost of using such a technology.
Put diplomatically, Plug Power stock has a long road ahead.
How to Approach Plug Power Stock
Does this mean PLUG stock is doomed to irrelevance? Not necessarily. As Alleckna further points out:
The future indeed looks bright for hydrogen fuel cell cars. Hybrid vehicles are becoming each time more popular, and we can expect 100% hydrogen fuel cell cars to be one of the main alternatives some years from now, as people start to notice how advantageous these products can be for them and the environment around them.
Thus, with two experts near opposite ends of the hydrogen spectrum, how should you approach Plug Power stock? Largely, it depends on your risk tolerance. If you’re a conservative investor, I wouldn’t touch shares. However, if you’re playing with “silly” money, I’m not entirely opposed to gambling on the dips.
But for the longer term, I’m cautious against PLUG stock. Both experts acknowledge that the current cost structure is challenging. And for what it’s worth, the economics of mainstreaming EVs represent a headwind against Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO).
Ultimately, I view Plug Power stock as a slot machine. If you want to play, that’s obviously your call. However, the fundamental outlook is not the most favorable right now.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
