Plug Power Is a Clear Sell After Disappointing Q1 2022 Earnings

  • Plug Power (PLUG) earnings in Q1 2022 were weak, with a wider expected net loss.
  • Higher natural gas prices could be continued pressure on margins in the fuel business.
  • An important order to deliver a 1 GW electrolyzer with H2 Energy  Europe has made Morgan Stanley (MS) turn bullish, why this may not be justified now.
PLUG stock - Plug Power Is a Clear Sell After Disappointing Q1 2022 Earnings

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Plug Power (NASDAQ:PLUG) stock, a leading company in building an end-to-end hydrogen ecosystem, is a bet on clean and renewable energy that has yet to pay off. The shares of Plug Energy have lost nearly 49% in 2022.

With the latest first-quarter 2022 earnings, a rebound will be hard to occur and remain in place. The whole rationale is based not only on the financial results but also on a trivial factor that if it persists, it may mean further weakness ahead for Plug Power. This catalyst is high natural gas prices.

PLUG Stock Q1 2022 Financial Results

Plug Power has started its Q1 2022 quarterly shareholder letter with the good news. The firm reported $140.8 million in revenue in Q1 2022, a 96% year-over-year growth, and reaffirmed full-year targets. There is optimism that 2022 revenue targets of $900 million-$925 million with approximately 80% growth year will be reached.

PLUG Plug Power $14.14

Turning to the bad news, a net loss of $156.48 million was reported versus a net loss of $60.74 million in Q1 2021. At the same time, an operating loss of $139.16 million was higher than the operating loss of $48.28 million in the same period a year ago.

I have stated many times that when I see a firm struggling not only to make a net profit but also to make an operating profit, I am not happy at all and turn bearish. Add the fact that Plug Power had a miss on both EPS and revenue in Q1 2022 strengthening my bearish analysis.

The EPS GAAP of -$0.27 was a miss by -$0.11, and revenue of $140.80 million despite the impressive year-0ver-year growth was a miss by -$2.18 million.

Higher Natural Gas Prices Mean More Pain Ahead for PLUG

I like it a lot when the management of the companies informs investors and analysts about headwinds. Plug Power stated the following important information,

“Also highlighted in our last earnings call, margins in the fuel business continue to remain under pressure and were down sequentially due to increased hydrogen molecule cost associated with higher natural gas prices. Natural gas prices at Henry Hub, on average, were up over 13% in the fourth quarter of 2021 versus the third quarter of 2021,” adding that “We expect margins to remain under pressure in Q2 2022 driven by continued increase in natural gas prices.”

This is a catalyst that makes us believe Q2 2022 earnings will probably also be weak, and net loss should be expected. This scenario cannot support with logic any rally for PLUG stock now. Further downside pressure has better odds.

PLUG Stock’s Announcement with H2 Energy Europe

The news is that Plug Power “has been awarded an order to deliver a one gigawatt (GW) electrolyzer to hydrogen company H2 Energy Europe. Planned for a green hydrogen production complex in Denmark, this is the largest capacity electrolyzer installation in the world to date,” is very positive and has made Morgan Stanley (NYSE:MS) turn very bullish on PLUG stock now.

Morgan Stanley analyst Stephen Byrd estimates that this order alone could generate $500M of revenue when it is delivered in 2024. Is it enough to have an overweight rating and a target of $60 for PLUG stock? I disagree.

Plug Power has a strong sales growth but at the same time it is unprofitable, has been issuing new debt, has consistent operating losses, and burns cash. The targets of achieving in three years, in 2025 $3B in annual sales, 30% gross margin, and 17% operating margin seem to me now too optimistic. The latest figures for gross margin and operating margin are -34.05% and -88.44%.

Plug Power must make wonders to achieve its 2025 targets compared to today’s results. I remain very bearish on PLUG stock.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.


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