When I covered Plug Power (NASDAQ: PLUG) for Bloomberg in the 1990s, fans of PLUG stock argued that it was poised to make gazillions of dollars as soon as fuel cell technology became commercially viable.
They made the same argument when I last wrote about the company for InvesorPlace in 2014 and are saying the same thing today. So, you will have to excuse me if I’m not ready to join the PLUG stock bandwagon.
PLUG hasn’t had a profitable quarter in its more than two-decade history and it doesn’t look like it will break its streak anytime soon. The company is trumpeting the fact that it expects to earn more than $200 million in adjusted EBITDA and $1 billion in “gross billings” in 2024.
That’s a huge change from the $235 million to $245 million in gross billing Plug Power expects to report for 2019. Even so, there is less to these claims than meets the eye.
Adjusted EBITDA excludes “non-cash charges for customer warrants” PLUG has issued to Amazon (NASDAQ:AMZN) and others. According to Plug’s latest 10-Q filed with the Securities & Exchange Commission, Plug had nearly 116 million outstanding warrants as of September 2019.
The company’s shares outstanding were about 237 million as of its last earnings report, indicating a huge potential for shareholder dilution over the long run. Gross billings also ignore the key issue of whether Plug is getting paid in a timely manner from its customers.
Plug Stock Sure Packs a Punch
Even so, the stock has been on a tear, gaining 57% since January. It surged 11 percent on Monday alone for reasons which weren’t immediately clear. As a result, the shares blew by the average 52-week price target of Wall Street analysts which was $4.63.
Plug Power continues to drown in red ink. During the last four quarters, it generated nearly $80 million in negative free cash flow despite having marquee customers like Amazon and Wal-Mart (NASDAQ:WMT)
The company also recently announced a $172 million order from what it described as a “Fortune 100 customer.” In theory, the deal is a huge win for the company, which earned $184.8 million in 2018 revenue.
The announcement left some lingering questions, though. First, why wouldn’t the company (rumored to be Home Depot (NYSE:HD)) want to be associated with Plug? After all, companies are always eager to burnish their images as being environmentally friendly? That’s especially odd given that other big companies have publicly associated themselves with PLUG.
Who Is `The Mystery Customer?’
Confused? So were Wall Street analysts like Eric Stine of Craig-Hallum who questioned Plug CEO Andy Marsh about the mystery customer during the company’s recent Business Update conference call.
“I know last year you were targeting (a)’mega customer,'” Stine said. “I guess, is this that mega customer that you’re now able to give more details, the same customer that you had talked about at the symposium?”
Indeed, the Fortune 100 customer and the “mega customer” are one and the same.
Plug’s has missed analysts’ expectations in 2 out of the past 3 quarters. Given the hype surrounding PLUG stock, anything less than the mother of all earnings blowouts in March will be viewed as a cataclysmic failure. The stock would then act accordingly, which is why I am staying on the sidelines with PLUG stock for now.
Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams. He doesn’t own shares of any of the aforementioned stocks.