Plug Power (NASDAQ:PLUG) has had a fantastic year. Shares are up more than 300% year-to-date, and are up more than 10x off their 2018 lows. However, if you zoom out, things look less impressive. Plug Power has lost roughly half its value since the financial crisis, and a Plug Power buyer during the dot com bubble is still down 99% on their investment even after 2020’s big comeback.
This discrepancy shows Plug Power’s volatile nature. The stock has ruined numerous short sellers and long-term investors alike. And given its history, Plug Power remains a battlefield.
The most recent developments have continued along Plug Power’s usual narrative arc. The company’s Q2 earnings results were underwhelming, as it remains loss-making and barely was even positive on an EBITDA basis. However, the company raised more money and offered favorable discussion about potential commercial and technical breakthroughs in the future. Following this, the bears pointed out the company’s lousy financial results, while the bulls focused on a more promising future.
Citron Goes on the Attack
This trajectory is predictable because Plug Power is a controversial stock. The company’s shareholders absolutely love the story. Meanwhile, skeptics routinely accuse the company of being a sham or pump and dump scheme. This is bound to happen with any company that has a huge market capitalization, yet has never generated consistent profits. Somehow, the drama is even higher than usual with Plug Power.
Well-known short selling firm Citron Research weighed in with a scathing tweet. In it, Citron claimed that Plug Power has become “retail mania.” Specifically, Citron said that Plug Power will miss its 2020 revenue targets by a massive 40%. It reminded readers that Plug Power spends a tiny amount of money on research and development.
Then Citron got to the meat of its argument. Plug Power, unlike Tesla (NASDAQ:TSLA), has seen its chief executive officer (CEO) Andy Marsh unload stock. Elon Musk has shortcomings, but he’s always eaten his own cooking; Musk retains a massive position in Tesla stock.
Plug Power’s CEO, by contrast, has gotten rid of 95% of his prior stake in Plug Power. That, in combination with Plug Power’s more than $8 billion fully diluted market capitalization, made Plug Power egregiously expensive even in comparison to Tesla, according to Citron Research.
More Expensive Than Tesla?
Citron makes the point that, on a relative value basis, investors are paying even more for Plug Power than they are for Tesla. That’s pretty incredible, as Tesla itself is historically expensive compared to the auto industry as a whole.
This whole discussion about relative valuations arguably gets off track though. At the end of the day, a stock is still an ownership position in an underlying business.
While there are numerous issues with Tesla, it’s proven that it has a functional core business. The company produces cars that a segment of the population really likes and is willing to pay high prices for. Some of Tesla’s business practices and management decisions are unconventional, but there’s little doubt that the actual business plan is feasible.
Plug Power, by contrast, has toiled away for two decades now trying to make its technology a commercial success. So far it has almost uniformly failed. That could change, of course. But at this point, Plug Power has much more to prove than some of the other green energy rivals that are farther along in commercialization of their intellectual property.
On the other hand, Plug Power still has a tiny revenue base. If it ever starts to truly become successful in selling its products, it could grow revenues dramatically and bring its valuation more in-line with peers. Tesla, by contrast, already has $25 billion in annual revenues, and thus is fairly mature. It, unlike Plug Power, doesn’t have the same potential to grow revenues exponentially in the near-term.
PLUG Stock Verdict
I’m long-term bearish on Plug Power. I find many of the points that fellow contributor Thomas Yeung made recently to be on the money. Yeung highlights how Plug Power relies on operating leases instead of traditional sales. This is a crucial point that investors must keep in mind, as the economics are much worse. If and when Plug Power develops a strong product line-up, customers will eagerly buy its products. The reliance on operating leases, by contrast, indicates Plug’s weak competitive position.
Where I disagree with Yeung, however, is simply a matter of timing. Yeung sees Plug Power stock “sinking to zero.” I doubt that will happen, at least not in the near-term. Plug Power is the ultimate story stock. It has a compelling hydrogen narrative, and investors have been eager to fund the company for decades, even in the face of repeated commercial failure.
As such, in the midst of a electric vehicle boom, Plug Power will have no trouble attracting more investors. This should lead to volatile trading as sentiment oscillates.
I wouldn’t want to own Plug Power, but it’s a tricky short as well. This should make for plenty of compelling opportunities for short-term traders. For fundamentals-driven investors, though, there are safer picks in the electric vehicle space.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.
