Plug Power Inc. PLUG, a prominent name in the green hydrogen industry, has seen a 19.2% plunge in its stock price over the past month, underperforming the Zacks Manufacturing - Electronics industry as well as the S&P 500. While the industry declined 2.5% over the same time frame, the S&P 500 advanced 2.6%.
The company has been persistently suffering due to negative gross margins and cash outflows over the past several quarters. This is further evident from PLUG’s poor second-quarter 2024 results despite it being a leading hydrogen energy stock.
Plug Power Lags Industry & S&P 50
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Some investors might see this dip as an opportunity to buy Plug Power, considering the vast long-term market potential of green hydrogen and the company’s solid product pipeline. However, it would be prudent to assert if it is the right time to invest in the stock. Let’s delve deeper.
Factors Weighing on PLUG Stock
Plug Power has been plagued by a decrease in revenues from the sales of hydrogen equipment and related infrastructure — the company’s major source of income. Lower sales of PLUG’s GenDrive units, GenSure stationary backup power units and cryogenic storage equipment and liquefiers have been weighing on the company’s performance over the past few quarters. The decline in revenues from the sales of hydrogen infrastructure is primarily attributable to the lower sales of electrolyzers and reduced hydrogen site installation activities.
PLUG witnessed a significant decline in the number of hydrogen site installations in the first six months of 2024, which reduced from 31 to eight on a year-over-year basis. This has been adversely impacting its revenues related to the sales of hydrogen infrastructure. Additionally, fewer projects and a slower rate of progress on the existing ventures have been hurting revenues from the sales of cryogenic storage equipment and liquefiers.
Another major issue that has plagued Plug Power is its inability to generate positive gross margins and cash inflows. The adverse impacts of high labor and raw material costs, combined with lower selling prices for both PLUG’s equipment and fuel solutions, have been affecting its margin and profitability.
In the second quarter of 2024, the company incurred a loss of $262.3 million, or 36 cents per share. Meanwhile, its operating cash outflow totaled $254.7 million, while free cash flow was negative $350 million.
Given the weak liquidity position, the company has been selling shares to raise funds for its operations and invest in hydrogen plants. In the second quarter, it received $266.8 million as net proceeds from equity sales and the amount totaled $572.1 million through the first half of the year.
PLUG’s Sales Estimates
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Adding to investors’ worries, Plug Power’s shares have been trading below the 200-day moving average, which suggests a continuation of the downward trend in the short term.
200-Day Moving Average
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Long-Run Prospects Remain Bright
Going by some estimates that state that the green hydrogen energy market may grow to $30 billion by 2030, Plug Power offers solid long-term growth opportunities.
The company’s strong expertise in providing and installing electrolyzers is underlined by its deployment of more than 95 megawatts (MW) of proton exchange membrane (PEM) electrolyzer systems till date. This is underlined by its successful proton exchange membrane (PEM) electrolyzer deployment at the U.S. largest electrolytic liquid hydrogen production plant in Georgia.
It's worth noting that PLUG also has a significant presence in Rochester, NY, with its Gigafactory being one of the biggest PEM manufacturing facilities in the country.
Plug Power is on track to deliver and commission 37 additional units, which are likely to expand hydrogen production capacity by 40 metric tons per day in the second half of 2024. The company expects its electrolyzer systems to generate 93 metric tons of hydrogen per day globally as more systems are commissioned and put into operation.
Its strategic partnerships with major companies like Walmart Inc. WMT, Olin Corporation OLN, and Amazon.com, Inc. AMZN are also likely to be favorable.
PLUG remains focused on reducing cash burn, improving margins and boosting its balance sheet. In the second quarter, it reduced its net cash used in operations and capital expenditures by about 30% and aims to cut expenses further in the second half.
Conclusion
While the significant dip in PLUG stock is concerning, the company’s strong market position, innovative product portfolio and strategic partnerships are likely to be beneficial in the long run. The ongoing challenges, including lower sales of hydrogen infrastructure, negative gross margins and cash outflows, are likely to continue to impact this Zacks Rank #3 (Hold) company’s revenues and earnings in the short term.
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