Plug Power (NASDAQ:PLUG) stock has had exceedingly volatile year. If you’re a trader, PLUG stock has offered a wealth of opportunities to catch big swings. For investors, however, all the ups and downs have likely been discomforting.
Plug Power’s latest tumble has both traders and investors running for the exits. Since its peak at $6 per share in February, PLUG stock lost as much as half of its value. Given its past volatility, you might think that Plug Power is set to bounce right back up. And that may be true in the short run.
But be careful. This is a company facing a great deal of challenges. As economic headwinds continue to mount, Plug Power may find itself entering a prolonged slump.
Another Sour Earnings Report for PLUG Stock
Plug Power has a history of tending to produce underwhelming earnings reports. And they stuck to the trend with the Q4 results that they published on March 5. Revenues did beat expectations, but the non-GAAP loss of 7 cents per share fell 1 cent short of expectations.
And that was after expectations had come way down. You may recall that in a shareholder letter at the start of 2019, the company guided to $235 million to $245 million of gross bookings for full-year 2019. This, in turn, would lead to “slightly negative to slightly positive” operating cash flow for the full year.
They did hit the low end of revenue guidance, bringing in $237 million of bookings for the year. But profit margins went way south, resulting in a huge cash outflow. Instead of being breakeven as forecast, they consumed more than $65 million of cash operating the business in 2019.
In addition to that, management confirmed that one of their most highly touted new customers of 2019, StreetScooter, will be out of the picture going forward. StreetScooter was supposed to deliver vehicles to Germany’s logistics company DHL. Plug Power’s CEO Andy Marsh said on the Q4 conference call:
We’re sorry to see that StreetScooter is encountering financial difficulties with their battery electric vehicle program. We’ll continue the remaining contact and work with them, but look, I think that the press has been pretty clear that they’re really stepping back to kind of understand what their next steps are. And so, we have no choice, but to continue to work with others.
This brings us to the next problem.
Cheap Oil
A recent Bloomberg article noted a difficulty that Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) and other electric vehicle makers will be facing. They quoted AlixPartners’ head of automotive practice, Mark Wakefield, who stated: “It’s certainly bad news for any electric vehicle launch if a drop in gas prices stays around for several months […] If the gas-price drop gets to a level where consumers can start to trust it, they will shift out of fuel-efficient cars into less fuel-efficient cars.”
To be fair, hydrogen fuel cells aren’t electric vehicles. The energy cost savings calculus isn’t precisely the same. But the same general principal applies. As hydrogen fuel cells were only economical in limited use cases in an expensive fossil fuel world, they become an even more niche product in a world where diesel fuel and other readily-available options are dirt cheap.
The oil price crash of the 1980s killed off a ton of green energy and cleantech companies then, and we could see a similar effect happen in the early part of the 2020s. Companies with weak balance sheets like Plug Power are at great risk.
Cash Remains in Short Supply
When Plug Power’s stock price was still riding high recently, the company managed to raise $120 million in a secondary offering. That, combined with the company’s existing cash position, might make it look like PLUG stock is in decent shape. But that’s simply incorrect, as there is a devil in the details.
Plug Power has a restricted cash problem. The company uses vendor financing, which means that it sells products to customers and can claim revenue immediately. However, Plug Power doesn’t force its clients to pay up on the spot, instead setting up a lease structure that gets paid off over time. As a result of various transactions related to this, Plug Power has a ton of restricted cash that it cannot yet access to manage its day-to-day needs.
Over the course of 2019, according to SEC filings, Plug Power’s restricted cash position ballooned from $54 million to $175 million. This is not a healthy situation. It shows Plug Power’s weak bargaining position when its customers can get such favorable terms when buying Plug Power’s products. Meanwhile, the company ends up diluting shareholders repeatedly to try to keep the business running.
PLUG Stock Verdict
As I have explained previously, Plug Power is a story stock. The company has been in business for decades and has little to show for it. The company has historically lost hundreds of millions of dollars. It has frequently appeared to be at a turning point where it would become a sustainable profitable business, but then something inevitably goes wrong.
Plug Power had a promising moment there at the end of 2019. But like so many times before, the story got ahead of the financial realities. Now, this latest stock market plunge and economic downturn has cast a dark shadow over Plug Power’s potential. Maybe PLUG stock was finally going to breakthrough. But it seems deeply unlikely now that the economic winds have shifted.
At the end of the day, Plug Power remains deeply unprofitable and is likely to need more cash sooner or later. Given its plunging share price and the quickly sliding credit markets, raising funds will not be easy. This likely means that Plug Power shareholders will need to deal with even more share dilution going forward. That, in turn, would cause shares to slide even further.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. As of this writing, he held no positions in any of the aforementioned securities.
