While 2020 will go down as one of the most dramatic in terms of surprisingly robust performances, very few can hold a candle to Plug Power (NASDAQ:PLUG). A hydrogen fuel-cell specialist, PLUG stock always carried scientific intrigue. But it wasn’t until last year that market sentiment caught up to its underlying innovative potential.
From the beginning of January to the end of December, PLUG stock obliterated the competition with a 10.5x return. Certainly, it made longtime doubters like me look incredibly foolish. Much of the enthusiasm was arguably driven by the consumer end. Increasingly, the relevant generation (i.e., millennials) have pushed for clean energy solutions. This fit right into Plug Power’s objectives.
Not only that, the political machinery bolstered the long-term narrative for PLUG stock. I don’t think it’s a coincidence that Plug Power shares really came alive and entered crazy-ville when authorities confirmed the 2020 election results. As you know, one of then-presidential candidate Joe Biden’s signature campaign promises was net zero emissions and environmental justice.
Fundamentally, this should be music to the ears of PLUG stock investors. And for a time, it was. But since early February, PLUG has been one of the ugliest investments. Below are three reasons why the equity tumbled and why you should probably stay away.
Financials for PLUG Stock Didn’t Change (at Least Not Positively)
While the science behind PLUG stock has always captivated contrarian investors, the investment itself was contrarian because of the poor underlying financials. According to data from Gurufocus.com, since at least 2006, annual net income has been negative. Also during this time, free cash flow never printed anything other than red ink.
Of course, no stock that I’m aware of trades on past financial data but rather the anticipation of future returns. But at some point, investors need to have some substance, especially on growth stocks that are seemingly trading on speculation and little else. So, Plug Power needed to deliver the goods in its fourth quarter of 2020 earnings report.
Instead, the company failed, reporting a deeper loss than expected and posting negative revenue. To be fair, Plug Power reported record gross billings last year. The executive team also remains bullish on 2021. Certainly, the company’s upcoming Q1 2021 report could return the narrative back onto a positive trajectory. It was “estimated” to report earnings yesterday, according to Nasdaq. No word from Plug Power as of publication time on when that might occur.
Still, the risk is that if Q1 doesn’t meet analysts’ expectations, the situation could get uglier. Either way, you’d imagine that the alternative energy firm would have to deliver something truly special to justify exposure to PLUG stock.
Renewable Energy May Not Be ‘All That’
On its website, Plug Power claims that it has deployed more than 38,000 fuel-cell units. It’s also the largest buyer of liquid hydrogen and has built more hydrogen refueling stations than any other company in the world. Logically, then, if the global economy transitions to a hydrogen-based energy platform, PLUG stock will eventually resume its ascent.
Though the idea of a hydrogen-based economy sounds attractive, it’s still far from being a reality. On the consumer level, making hydrogen fuel cells work effectively for transportation purposes is difficult due to high costs. True, Plug Power focuses more on the fleet aspect of the transportation industry. Even so, the lack of infrastructure overall makes adoption of hydrogen-based carriers very difficult.
Surely, if hydrogen was viable, more investors would jump on the discount in Hyliion (NYSE:HYLN) shares. Instead, they’re dumping the alternative transportation specialist, which was also developing a hydrogen fuel-cell version of its Hypertruck.
In other words, PLUG stock needs more than a great science story. Management must convince investors that the numbers will work out. So far, the leadership team hasn’t been able to make that case credibly.
Speculative Funds Rotating to Alternatives
One of the problems with gaining meme stock notoriety is that you must keep buyers interested. Otherwise, they will move onto other stocks or asset classes. I believe this dynamic is contributing to Plug Power’s selloff pressure.
Typically, meme stocks attract younger people for obvious reasons. Most folks on social media platforms are part of the under-30 crowd. And young folks are frankly more impressionable than others and are willing to put dubious advice into action.
But the other component to the youth investing segment is the lack of resources. Therefore, when young traders identify the potential next big thing, they’re going to dive into the newfound investment with gusto. Usually, that means they take profits from prior hot stocks and reinvest the earnings to the flavor of the week.
For now, that flavor happens to be cryptocurrencies. Unfortunately for PLUG stock, there’s just no stopping this space apparently. This will attract more buyers to cryptos, leaving anyone tied to PLUG holding the bag.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.