The succinct answer is: No, purchasing Plug Power stock is not advisable at this time. Now, let’s delve into a more detailed explanation regarding this investment choice.
After experiencing a surge due to the post-election stock market rally, Plug Power (PLUG -3.46%) stock reached a peak of $3.15 on January 6. This price point marked a high not witnessed since the previous summer. However, the trajectory since that date has been predominantly negative.
Between January 6 and the earnings report on March 3, shares of the hydrogen fuel producer and fuel cell manufacturer saw a staggering decline of over 50%, plummeting to about $1.50 per share. This price reflects a persistent downward trend, despite a minor bounce following the earnings announcement.
Investors must be pondering whether this trend indicates the end of the decline or if Plug will eventually recover. Should you consider investing in Plug stock while it remains below the $2 threshold?
Analyzing Plug Power’s Earnings Report
On March 3, Plug Power released its earnings for 2024, revealing disappointing results. The sales of its primary product, hydrogen fuel cells, experienced a drastic drop of 45% year-over-year, signaling extremely weak consumer demand for their offerings. While fuel sales (hydrogen) did see a growth of 48%, this increase came from a much smaller base and was insufficient to offset the decline in overall revenue, which fell by 30% compared to 2023.
Furthermore, the company faced escalating losses across all metrics: gross losses increased by 23% year-over-year, operating losses surged by 50%, and net losses skyrocketed by 54%. Ultimately, Plug ended the year with staggering losses totaling $2.1 billion, which translates to a loss of $2.68 per share.
This per-share loss was indeed only 16.5% worse than the previous year’s results, but this is primarily due to the company’s strategy of issuing and selling a significant number of shares to raise cash and maintain solvency throughout 2024. The total share count increased by 32%, thereby diluting losses across a larger number of shares, resulting in per-share losses that were less severe than they otherwise would have been.
It is crucial to note the reasons behind the necessity for such extensive share sales. Plug Power recorded a staggering cash burn of over $1 billion in negative free cash flow in 2024, which consumed substantial capital and prompted the need for share sales to replenish cash reserves.
Future Outlook for Plug Power in 2025
What does the year 2025 have in store for Plug Power? This query dominated the discussions from management during the earnings release, focusing on strategies for the company to extricate itself from its current predicament and return to what they term a “path to profitability.”
According to management, they are actively pursuing various strategies to achieve this goal. They claim to be optimizing operations, streamlining the workforce, consolidating facilities, adjusting pricing for certain products, reducing working capital, and reprioritizing investments in hydrogen and new products. Consequently, they assert that cash burn in 2024 has already decreased significantly from the $1.8 billion consumed in 2023.
To extend their remaining cash reserves, Plug has unveiled “Project Quantum Leap,” aimed at implementing layoffs, facility consolidations, inventory reductions, capital spending cuts, and other cost-saving measures. Collectively, these initiatives could potentially lower annual expenses by $150 million to $200 million.
As of the last report, Plug had approximately $405 million in both restricted and unrestricted cash remaining, which is an improvement from 2023, largely attributable to the aforementioned stock sales. Furthermore, management announced the recent sale of an additional 46.5 million shares, bundled with 138.9 million warrants that allow purchase at a minimal price (exercisable if Plug’s stock price reaches $2), for $1.51 per bundle. The $280 million raised from this sale should increase Plug’s cash reserves to around $685 million.
Image source: Getty Images.
Evaluating Whether Plug Stock is Worth Buying Below $2
In light of the information discussed, let’s revisit the pressing question: Is it advisable to purchase Plug Power stock when it trades below $2 per share?
My recommendation is a definitive “no.”
Even taking the most optimistic view of the figures, including the $1 billion cash burn rate, the strategy to reduce that by $200 million, and the $685 million cash on hand, my analysis indicates that Plug Power is likely to exhaust its cash reserves before the conclusion of 2025, necessitating further share sales.
Additionally, it is important to consider the 185.4 million “common stock equivalents” recently sold by Plug. When combined with the previously outstanding 925.2 million shares on earnings day, this will inflate the total share count to approximately 1.11 billion. This increase will dilute current investors’ stakes and most likely lead to a further decline in Plug’s stock value. Moreover, most of this dilution will only take effect if Plug Power stock climbs to $2 per share, allowing for the exercise of warrants. Thus, even if Plug stock manages to reach $2, it is probable that it will subsequently decline again due to an influx of new shares weighing down the stock price.
