The story of Plug Power (NASDAQ:PLUG) and the rise and fall of its stock is fairly straight-forward. In the last week of January 2020 its stock was trading around $4. No one really cared much about the small Latham, NY alternative energy company focused on hydrogen.
But then, over the course of the next year, PLUG stock would rise to eclipse $73 by late January of 2021. To a degree the company simply got caught up in an assumed green revolution. Investors bid up everything EV and created a bubble that burst. In that process alternative energy equities like Plug Power became overbought.
Investors may see that stock prices have since dropped to $28 and be quick to assume it is simply a dud. But the company does have some merits, it’s just that what it proposes to do can’t be achieved quickly.
Revenue Issues
The narrative behind Plug Power’s revenue results for 2020 is fairly complex. On the one hand its results were good: The company achieved record gross billings of $96.3 million in Q4 of 2020, and $337.4 million for the entire year. Investors in general are happy when such positive broad indicators show up in earnings releases. Considerations like cost of revenues obviously complicate the overall revenue picture, but most investors will applaud Plug Power’s achievements.
Yet, there were complicating issues for Plug Power. It ended up incurring $456 million in costs, the majority of which were related to customer warrant charges. The result was that the company ended up reporting a revenue loss of $316 in Q4, and a loss of $100 million for the entire year. The company states that the issue won’t occur again but one has to assume that investors could very well be once bitten and twice shy.
Vision Will Take Time
Plug Power’s vision for its business is that it will have 5 green hydrogen plants, 500+ hydrogen refueling stations, and that it will be shipping 25k+ material handling units (forklifts) annually by 2024.
Firstly, that is future projection based. Investors already got swept up in the idea that an alternative fuel revolution was here today and that they could jump into PLUG and capitalize. It wasn’t that simple. Further, that business plan could pivot if any particular segment proves fruitful.
Plug Power is proposing to build out a massive network and also focus on commercial and personal hydrogen vehicles. It even claims that hydrogen will fuel passenger jets. This has been long postulated across the industry but the actual implementation remains far off.
Let’s take a minute and look at the vehicles the company looks to capitalize on. My guess is forklift fuel cells and passenger vehicles are its surest bets.
Materials Handling Fuel Cells
The company already has existing joint ventures and projects to provide its fuel cell technology for WalMart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Home Depot (NYSE:HD) forklifts.
It intends to ship 25K+ forklift fuel cell units by 2024. Seeking Alpha was quite negative on the company because it sees the company as a ‘glorified forklift fuel-cell manufacturer’(1) which rode the delusions of a hydrogen economy to higher stock prices.
Yes, frankly it did. But it should leverage what it already has there and pull back on the grandiose green revolution dreams.
And then it should really get serious about its opportunity in passenger vehicles that exists with SK, the Korean mega conglomerate. SK is investing $1.5 billion into Plug Power and Korea has a 2040 goal to out 6 million plus hydrogen vehicles on its roads.
I lived in Korea for a long time and the pace of technological change in the country can be mind bogglingly fast. That partnership could be a boon for Plug Power that completely changes the course of the company for the better.
The point here is that rather than trying to be everything to everyone in the hydrogen economy, why doesn’t Plug Power focus on more tangible, and more easily achievable goals?
I don’t think PLUG stock deserves investment dollars until it does.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
