Earlier this month, I discussed how negative sentiment about Plug Power (NASDAQ:PLUG) shares continues to increase. As the hydrogen fuel cell company continues to execute poorly, sell-side analysts continue to grow bearish on PLUG stock.
Investors have kept on abandoning it in droves, resulting in PLUG falling back to sub-$10 per share price levels. Shares haven’t traded this low since the start of the 2020/2021 bubble amongst “green wave” stocks.
Unfortunately, after its extended slide in price, another sell-off may be just around the corner. Worse yet, even if the stock experiences another hard tumble in the coming weeks, that may not mean that it has found a floor.
Substantial downside remains, as this renewable energy firm carries on trading at a valuation built on its high exposure to green trends, rather than on the true potential for the company to capitalize on these trends.
The Next Big Drop for PLUG Stock
Post-market on May 5, Plug Power will report its fiscal results for the quarter ending March 31, 2023. Over the past month, analysts have walked back their expectations. Back in January, the sell-side expected the company to report losses of around 20 cents per share for the March quarter.
Last month, consensus estimates for losses went up to 24 cents per share, and are now at 25 cents per share. Still, despite these downward revisions, there is still a strong chance that Plug Power disappoints with its latest numbers.
That’s what happened last quarter. Even as Plug reported strong year-over-year revenue growth, its top line fell short of estimates. To make matters worse, the company’s losses per share last quarter were much wider than Wall Street expected.
If the same sort of situation plays out again with these latest numbers, it could elicit a similar response among investors. After the last earnings release, PLUG stock experienced a moderate drop in price.
However, even if PLUG tumbles by more than a moderate amount, I wouldn’t recommend “buying the dip.”
Further steady declines are likely. It all has to do with the discrepancy between Plug Power’s valuation and its likely long-term prospects.
How Low Could Shares Go
PLUG stock may trade for just a little over 10% of its ten-year high, but it is not a bargain at current prices. Sure, the stock doesn’t trade at all that high of a premium to the company’s tangible book value of $6.10 per share.
Still, its current share price is based largely on its potential to ultimately become a large, profitable energy company, thanks to the global pivot away from fossil fuels. However, despite this big positive in Plug Power’s corner, it remains hard to be confident this will lead to strong results in the near-future.
The company has repeatedly overestimated how quickly it can scale up operations and to reach positive gross margins. That’s clear from Plug’s results in recent quarters.
With this, it is highly questionable whether Plug Power will hit its revenue and gross margin targets ($1.4 billion and 10%, respectively) for this year.
If subsequent results cannot match up with these projections, PLUG is likely to keep tumbling. Even if at first glance it may seem that the aforementioned tangible book value will serve as a floor, that may not be the case.
Assuming high cash burn continues with Plug Power, as it attempts to achieve profitability, I wouldn’t count on the stock’s tangible book value holding steady. At the end of 2021, the tangible book was about $1.22 per share higher than it is today.
Continued cash burn will bring down this figure, which presumably means more room for shares to fall.
On a longer time horizon, even if Plug Power builds a portfolio of tangible hydrogen product assets, it still needs to produce a profit with this infrastructure.
If the company can’t, it’s not out of the question for the stock to ultimately trade at a discount.
As always, positive surprises in the quarters ahead could change the story. However, for now, avoiding PLUG stock, whether before or after earnings, remains the best move.
PLUG stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.