Down 38% YTD, Is Plug Power Stock Oversold?

As Plug Power (PLUG) stock now faces a 38% decline year-to-date, the question looms large: has the company’s stock become oversold? Positioned as a leading player in the realm of green hydrogen, Plug Power’s innovative solutions have garnered attention within the renewable energy space. Yet, despite its pioneering status, recent market movements have cast doubt on the company’s trajectory, prompting investors to scrutinize its business model, financials,  valuation, and prospects with a discerning eye.

Let’s see if you should buy this hydrogen stock right now. 

An Overview of Plug Power Stock

Plug Power (PLUG) functions as a green hydrogen company, concentrating on constructing a comprehensive green hydrogen ecosystem spanning production, storage, delivery, and energy generation, while also offering material handling, e-mobility, power generation, and industrial applications to aid customers in achieving business objectives and advancing economic decarbonization.

Over the past year, PLUG has lost about 65% of its value, and now sports a market cap of $1.75 billion. Year-to-date, the stock is down around 38%, significantly underperforming the 9.3% return of the S&P 500 Index ($SPX) during the same period.

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Recent News for PLUG Stock

On May 3, Plug Power announced the signing of a memorandum of understanding with Allied Green Ammonia, an Australian company specializing in green ammonia production, to provide up to 3 gigawatts of Plug electrolyzer capacity for AGA’s upcoming hydrogen to ammonia facility in the Northern Territory of Australia.

On May 2, the company revealed contracts secured to provide cryogenic equipment to a multinational industrial gas firm and a statewide electric utility, with final negotiations underway to supply similar equipment to another major industrial gas entity. Plug said it will provide five cryogenic trailers for the Canadian market, enabling the transportation of cryogenic industrial gases like nitrogen, argon, and oxygen, with deliveries slated for early 2025. In addition, Plug disclosed that it had secured a purchase order for liquefied natural gas cryogenic mobile storage equipment from a statewide electric utility, with delivery set to commence in the fourth quarter of 2024.

On May 1, Plug obtained the inaugural international safety and performance certification in Korea for its electrolyzer manufacturing, paving the way for the commercial distribution of Plug electrolyzer systems in the Korean market.

Green Hydrogen Looks Promising, But PLUG Remains Unprofitable 

According to Grand View Research, the green hydrogen technology market is projected to surge to $60.56 billion by 2030, reflecting a robust compound annual growth rate of 39.5%. While green hydrogen holds significant promise as a sustainable fuel, Plug Power has been unable to achieve profitability since its establishment.

In its third-quarter earnings, the hydrogen company issued a going concern warning, stating, “The Company is projecting that its existing cash and available for sale and equity securities will not be sufficient to fund its operations through the next twelve months from the date of issuance of this Quarterly Report on Form 10-Q.”

However, as of March 1, Plug Power announced that it had mitigated the risk of bankruptcy by bolstering its working capital and cash reserves, along with securing the support of a financial institution to purchase shares. It stated that it possessed enough cash to sustain its operations “for the foreseeable future” and “has determined that there is no longer significant uncertainty about the company’s ability to continue as a going concern.”

How Did Plug Perform in Q1 of 2024?

On May 9, Plug Power reported earnings for the first fiscal quarter of 2024. In Q1, the company's net loss rose to $295.8 million, or $0.46 per share, compared to $206.6 million, or $0.35 per share, in the same quarter last year. At the same time, revenues declined by 43% to $120.3 million from $210.3 million a year ago, attributed by the company to “seasonality in our equipment sales and timing impacts from electrolyzer deployments.” Wall Street analysts had anticipated Q1 sales to reach $156.7 million with a loss per share of $0.33.

However, Plug chalked up the lackluster figures to “new product scaling,” highlighting that it cannot currently report revenue from electrolyzer systems still undergoing commissioning. It indicated that the majority of its revenue for the year will be generated during the second half of 2024.

“Consistently with past seasonality and continued new product scaling, Plug expects that one-third of its full-year revenue will be in the first half of 2024. As of the Q1 2024 earnings date, Plug currently has 20 electrolyzer systems undergoing commissioning at third-party customer sites, with further deliveries to be made over the balance of 2024,” the company said in a statement.

Plug Power has implemented a price hike across its entire product range, with particular emphasis on hydrogen pricing. “We expect to see a positive impact on our margins in coming quarters as a result of these actions,” the company said.

Furthermore, Plug reported a rebound in sales within its materials handling division, particularly with hydrogen fuel cell-powered forklift trucks, following a pricing adjustment and a shift in the business model towards direct sales and customer-financed leases.

Investors appeared to embrace the company’s updates, disregarding the disappointing Q1 figures. As a result, Plug shares concluded the day with a nearly 10% increase.

Is PLUG Stock a Good Value?

The stock currently trades at 1.75x forward sales, notably lower than its five-year average of 16.72x. Moreover, the stock’s 2025 price/sales ratio stands at 1.13x. Despite these seemingly attractive multiples, PLUG’s continuous losses and negative gross margins cast significant doubt on its ability to justify such valuations.

Looking ahead, analysts tracking Plug Power anticipate the company to reduce losses to $0.94 per share in fiscal 2024, followed by a further reduction to $0.48 per share in fiscal 2025. Concurrently, PLUG’s revenue is expected to increase by 10.26% year-over-year to $982.83 million in fiscal 2024, followed by a more substantial rise of 55.23% to $1.53 billion in fiscal 2025.

Analysts anticipate that the company will remain unprofitable on a full-year basis until 2026, with its first profitable year expected in 2027.

Options Market Sentiment on Plug Power Stock

Looking at the June 21, 2024, option chain for PLUG, let’s figure out options market sentiment by comparing the open interest levels. 

The put-call ratio at the $2.50 strike price, closest to the current share price, stands at 4.93 - suggesting a much stronger inclination toward put options, and potentially indicating an expected decrease in the stock price.

What Do Analysts Expect for Plug Power Stock?

Plug Power stock has a consensus “Hold” rating. Out of the 26 analysts covering PLUG stock, seven recommend a “Strong Buy,” 15 recommend a “Hold,” one recommends a “Moderate Sell,” and three give a “Strong Sell” rating. However, the average target price for PLUG stock is $5.28, suggesting that the shares could rally as much as 90.6%.

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The Bottom Line on PLUG Right Now

Although the stock may appear oversold, I recommend that investors refrain from considering PLUG at the moment. Instead, I suggest that investors closely track the company’s performance in the latter half of the year, particularly when it is anticipated to generate the bulk of its 2024 revenue, and evaluate its progress on margins.

On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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