Seemingly everywhere you look, the narrative for Plug Power (NASDAQ:PLUG) appears positive. Primarily, both the U.S. and the world are increasingly gravitating toward clean energy. This dynamic supports PLUG stock, as the underlying company specializes in hydrogen fuel cells. Unlike gasoline combustion mechanisms, the only exhaust product of hydrogen-powered vehicles is water.
On paper, hydrogen is a compelling fuel source. As scientists have discovered, hydrogen is the most abundant element not just on earth, but in the universe. Since we will never run out of the stuff, we theoretically shouldn’t have the price volatility inherent in fossil fuels. That too bolsters the longer-term bullish thesis for Plug Power stock.
Finally, the element is actually safer than you might think. When most people hear about hydrogen, they immediately think about the Hindenburg disaster. But, as Washington State University researcher Jacob Leachman explained, the Hindenburg’s developers cut many safety corners.
More importantly, hydrogen dissipates very rapidly. Leachman explains that a hydrogen flame, “tends to burn out, and up and away” from the [ignition source], very quickly. Other academic institutions and corporations have tested this concept, confirming Leachman’s statement. In contrast, gasoline fires almost always linger, creating even more fire hazards. Indirectly, this safety aspect is a big plus for PLUG stock.
Additionally, for most of this year, Plug Power stock has been one of the surprise hits of 2019. Between January’s opening price and November’s closing session, PLUG skyrocketed more than 214%. Naturally, this robust rally got many fence-sitters interested.
However, in this month, PLUG stock has shed nearly 24%. Is the bull case for the alternative-fuel company fading, or should investors continue to hold?
Unfortunately for PLUG Stock, You Can’t Cheat Science
Even for those who are bullish on Plug Power stock, nearly everyone concedes that shares belong in the speculative category. After all, the PLUG price once traded in four-digit territory. Call me cynical, but there’s usually a reason why an equity loses 99.8% of its market value.
That reason comes down to science. As far as we know, we cannot cheat the physical laws of this universe. Generally speaking, the concept of alternative energy involves duping the public into believing that we can get practical energy cleanly and cheaply.
For instance, hydrogen’s unsinkable abundance should support PLUG stock. However, the reason it hasn’t over these years is that hydrogen is not a practical fuel source. Principally, this element has very tight tolerances. It must be kept in liquid form, as any other form like ice or steam will fail to create energy.
Furthermore, keeping hydrogen in its viable form requires energy — and creating hydrogen in that form to begin with is an expensive process. We also haven’t even talked about transporting hydrogen, which is also an onerous and costly procedure. Unfortunately, these grossly inconvenient factors limit the ultimate market for hydrogen-powered vehicles. Logically, this also presents headwinds for PLUG stock.
Now, it’s true that hydrogen-powered vehicles are cleaner for the environment. Also, they typically have greater range than electric vehicles, all other things being equal. However, is that enough for convincing more investors to jump aboard Plug Power stock?
Ultimately, I think it comes down to the economics. According to several reports, a record number of people care about the environment. However, that sentiment might go out the window if green initiatives start hurting the wallet, because the bottom line is that hydrogen-fueled vehicles are too pricey for most consumers.
Plug Power Stock Is an Experiment
Part of the long-term allure of PLUG stock is that advancing technologies could make hydrogen a viable alternative fuel source. Personally, I think both physical laws and economics work against this idea.
Still, major companies like Toyota (NYSE:TM) are stepping forward and cheerleading the hydrogen narrative. Additionally, Toyota’s native Japan is poised to take leadership in proving the concept of a hydrogen-based society.
Does this move the needle for PLUG stock? Not really. Here’s the painful truth: Toyota has ample funds to experiment with whatever they’d like, and they do. Some of those experiments will lead to practical innovations and others won’t make it past the cutting room floor. That’s the luxury that typically only the biggest companies in the world has.
Obviously, PLUG doesn’t have that luxury. If the company falters in its experimental bid, that’s it. Shares will drop to penny stock status at best. For most investors, I imagine that’s too steep of a risk.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.