Plug Power Stock Comes with Some Very Specific Risks and Rewards

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Plug Power (NASDAQ:PLUG) designs and makes hydrogen fuel cell systems that replace conventional batteries in electric equipment and vehicles, according to its web site. In other words, the company should be levered to booming demand for electric vehicles. Last year, to some extent, Plug Power stock was very much levered to that demand as the shares more than doubled.

Plug Power Stock Comes with Some Very Specific Risks and Rewards

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The problem is, when stock gains more than 150%, as did Plug Power in 2019, it would be reasonable to expect the shares to trade at prices that exceed a cup of coffee, but that’s not the case with this sub-$1 billion company.

Although the stock surged last year, recent price action has been unappealing following the announcement of a dilutive $104.7 million secondary offering that actually may be as large as $121.1 million.

Rarely is news of a secondary offering by financially embattled company well-received and that was the case with Plug Power. The stock was trading at around $4 when the announcement was made it would sell additional shares at $2.75.

Last Friday, the stock closed at $3.23, indicating there’s a fair chance it retreats to that level before it returns to the 52-week high of $4.04.

A Closer Look at Plug Power

For investors looking for a low-priced stock with big upside potential, emphasis on “potential,” Plug Power fits the bill. This much is clear: fossil fuels are being replaced in myriad ways and some of the investments in that space are as imperiled as Plug Power, if not more so.

What that says is that the move alternative energy is on. To date, that move has largely consisted of wind and solar, but with costs declining across the green energy space, adoption of other avenues, such as hydrogen, is expected to increase. That is one reason why there’s speculation that Plug Power can boosted revenue to $1 billion by 2024. Additionally, hydrogen fuel cells have an array of practical applications.

“A fuel cell is an electrochemical device, which converts a fuel’s (generally hydrogen) chemical energy, into heat and electricity,” reports Automotive News Europe. “What sets fuel cells apart from their traditional counterparts is their ability to cater to a range of applications; from largescale systems like utility power stations to something as small as a laptop.”

By 2026, the global hydrogen fuel cell market could be worth more than $55 billion. Importantly, automotive isn’t the only industry seen boosting that growth, according to Research and Markets:

Rising adoption of electric and hybrid vehicles, increasing demand in the telecommunications, automotive and residential micro-CHP sector, and diminishing dependence on non-renewable energy sources are some of the factors boosting the market growth. However, the high cost of switching to this technology and reduced hydrogen refilling stations are restraining the market growth. Moreover, expanding the take-up of novel techniques for the decrease in fuel costs among the fuel makers is providing ample growth opportunities for the market.

Bottom Line on Plug Power Stock

Whether it’s electric vehicles or telecommunications, many of the factors expected to drive demand for hydrogen fuel cells are longer-ranging in nature and there are no guarantees Plug Power will be around to realize those opportunities.

By its own admission, the company sees difficulties in becoming profitable and maintaining that profitability, assuming it’s ever realized.

Additionally, there are no guarantees that hydrogen will penetrate the electric vehicle market on par with analysts’ expectations. The world is awash in lithium, and until someone like a Tesla (NASDAQ:TSLA) or another major electric vehicle comes along and says they’d like to give hydrogen a try, the market may not reach its full potential.

For investors that are convinced that hydrogen fuel cells are winning ideas, perhaps the best way to play that theme is via a diverse alternative energy exchange-traded fund that has some fuel cell exposure, not with Plug Power stock.

As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.

Todd Shriber has been an InvestorPlace contributor since 2014.


Article printed from InvestorPlace Media, https://investorplace.com/2020/01/plug-power-stock-specific-risks-and-rewards/.

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