Plug Power (NASDAQ: PLUG) stock had been dropping consistently for months in 2023 until it gave investors some respite just before the new year. The hydrogen stock rebounded and gained 11.4% in December, according to data provided by S&P Global Market Intelligence. Investors are now wondering whether the stock has bottomed out and could rally this year.
Why investors bet on Plug Power despite all its problems
Plug Power's third-quarter numbers, released in November, raised several red flags. The company, which expects its top line to grow exponentially in the coming years, reported a meager 5% growth in revenue for Q3. It reported a negative gross margin of 69% versus a negative 24% in the year-ago quarter and blamed several factors for the fall including "equipment sales mix, service contract loss accruals, and continued negative fuel margins."
Worse yet, management confirmed Plug Power's existing cash balance is not sufficient to fund its operations and growth projects, and that it was pursuing several options to raise capital, including debt and project partners.
There's something else management said that sent Plug Power stock tanking: It added a cautionary note to its Q3 earnings report, warning how the company continued to incur losses, "might never achieve or maintain profitability," and questioned its "ability to continue as a going concern." Put another way, things at Plug Power are so dire now that it has become a question of survival, not growth.
Several analysts downgraded their price targets on Plug Power stock over the last couple of months of 2023, citing project delays, execution concerns, cash crunch, higher interest rates, and reliance on subsidies, among other things. But with the stock's price plunging to low single digits, some investors saw it as an opportunity to bet on the future of green hydrogen.
Plug Power, after all, remains a pioneer in green hydrogen. In December, it installed and commissioned an electrolyzer system at e-commerce giant Amazon's fulfillment center in Colorado. The system can support up to 400 hydrogen fuel cell powered forklift trucks, and the fact that Amazon chose Plug Power for its first such electrolyzer reflects Plug Power's expertise and foothold in the industry. To be sure, Plug Power has a long-standing partnership with Amazon, having deployed more than 17,000 fuel cells so far at its fulfillment centers to replace batteries in forklifts.
Amazon is one of the many companies switching to clean energy and adopting hydrogen fuel cell solutions. Hyundai Motor, one of the world's largest automakers, just declared that hydrogen fuel will play a key role in its path toward carbon neutrality. At the annual United Nations summit on climate change, COP28 held in December, participating nations committed to tripling renewable energy capacity by 2030. More than 30 countries launched a declaration of intent on clean hydrogen at the conference. As demand for green hydrogen grows, so should Plug Power's prospects. Or so it seems.
Where Plug Power stock could go in 2024
Plug Power is expanding its hydrogen network in the U.S. and Europe and expects to generate $6 billion in revenue by 2027 with a gross margin of 32%. By 2030, it expects to grow revenue to $20 billion and generate a gross margin of 35%.
These expansions, however, require money, and that's where Plug Power is faltering. With no profitability in sight and a "going concern" warning in tow, the stock could have a hard time finding its way back up in 2024.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.