plug power (NASDAQ: PLUG)A developer of hydrogen-powered residential systems, it seemed like a green energy company with a bright future when it went public in 1999. But its ambitious plans failed because producing hydrogen is more expensive than producing oil or natural gas, and it would be cheaper to expand the existing power grid rather than build new hydrogen infrastructure.
In the two decades after the dot-com bust, Plug Power eventually pivoted to selling hydrogen fuel cells and charging forklifts in warehouses and distribution centers. The new business grew as it landed some big clients, but some major accounting errors forced it to revise all of its financial statements from 2018 to 2020, driving away many investors.
Rising interest rates have also weighed on its valuation and cast a shadow over its ongoing losses.
Today, Plug's stock price is about 99% below its IPO price. The stock has also fallen about 10% in the past 12 months as investors shy away from the more speculative stocks in the market. Let's see if it goes higher or lower next year.
Plug Power’s two largest customers are Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT). The company locked in the two retail giants by subsidizing fuel cell sales with warrants, options to buy more shares at a discount.
The unusual arrangement made Amazon and Walmart Plug's largest investors, but the company didn't properly disclose how those incentives actually topped other customer payments. That's why Plug needs to restate all of its financial data from 2018 to 2020. After the restatement, its revenue actually turned negative in 2020.
Plug's revenue turned positive again in 2021 and grew over the next two years, but much of that growth was driven by two acquisitions that expanded its smaller cryogenic equipment division rather than its Primary Hydrogen Fuel Cell and Charging Systems Business - The business continues to struggle in its hydrogen fuel cell and charging systems business. Macro headwinds dampen market interest in expensive new hydrogen projects. This economic slowdown, combined with the high cost of integrating new acquisitions, caused its net losses to widen at an alarming rate.
| Metric | 2021 | 2022 | 2023 | 9M 2024 |
|---|---|---|---|---|
| Revenue (millions) | $502 | $701 | $891 | $437 |
| operating profit margin | (87%) | (97%) | (151%) | (165%) |
| Net income/loss (millions) | ($460) | ($724) | ($1,370) | ($769) |
Data source: Plug Power.
This pressure becomes more severe in the first nine months of 2024. Analysts expect Plug's full-year revenue to fall 20% to $714 million. However, they expect its net loss to narrow to $953 million as the company lays off workers, cuts costs and sells some equipment (through leaseback deals) to stabilize cash flow.
Plug Power remains a leader in the niche hydrogen infrastructure market. The company has deployed more than 69,000 fuel cell systems and more than 250 hydrogen refueling stations worldwide and is the largest single buyer of liquid hydrogen. Orders from Amazon and Walmart should support its near-term growth, and it may attract more attention from other warehouse and fulfillment center operators as the macro environment improves.
However, the company is still heavily losing money and is still issuing more shares to raise cash and pay stock-based compensation. The company's stock count has increased by nearly 426% over the past 10 years, and as of the third quarter of 2024, the company had just $94 million in cash and equivalents, while its total debt was $1.7 billion.
But it probably won't go out of business anytime soon. The U.S. Department of Energy (DOE) threw it a lifeline last year, providing $1.66 billion in new loan guarantees to build up to six new green hydrogen production facilities. Norges Bank, the Norwegian central bank, also increased its stake in Plug Power to nearly 8% in October last year.
Analysts expect Plug's revenue to grow 36% to $969 million in 2025 and another 36% to $1.32 billion in 2026. With an enterprise value of $3 billion, its valuation of just three times this year's sales seems reasonable. But these estimates may be a little too optimistic, and the company still won't break even in the next few years.
Assuming Plug Power meets Wall Street's expectations and trades at 3 times its expected sales, its enterprise value could grow to nearly $4 billion by the end of 2025. That would be a nice gain of over 30%, but it might be difficult to achieve that profitably if interest rates remain high and the hydrogen market remains cold.
Although its insiders bought 12 times more shares than sold in the last 12 months, its continued dilution may also limit its near-term gains.
I personally expect Plug Power to grow slower than expected in 2025 as the macro environment remains challenging for green energy companies. It may bottom out and edge higher over the next 12 months, but I don't expect it to beat analysts' bullish forecasts or outperform the broader market.
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John Mackey is the former CEO of Amazon subsidiary Whole Foods Market and a board member of The Motley Fool. Leo Sun works at Amazon. The Motley Fool has positions and recommendations on Amazon and Walmart. The Motley Fool has a disclosure policy.
Where will Plug Power's stock be in one year? Originally posted by The Motley Fool