Will Plug Power Stock Recover?

Energy stocks may have been overshadowed by artificial intelligence stocks this year, but that doesn’t mean they will be out of the limelight forever. There are still plenty of organizations that rank net zero emissions and energy efficiency strategies among their top priorities.

One compelling clean energy alternative is hydrogen, and Plug Power (NASDAQ: PLUG) is a pioneer in the industry. The company uses electrolyzers and clean-sourced electricity to strip hydrogen from water molecules, which can then be used to power everything from industrial plants to data centers.

The green energy movement drove PLUG above $66 per share in early 2021, but the stock has declined from there and the downtrend has picked up steam this year with PLUG falling by over 45% year-to-date.

The selloff is a direct consequence of Plug Power’s failure to meet its revenue and earnings expectations but there was positive recent news that the hydrogen industry may be due for a turnaround. With the stock is trading at around $2.50 per share, many investors might wonder if now is the time to take the plunge on PLUG?

Why Did Plug Power Stock Fall?

In the weeks following the company’s earnings release for the second quarter of 2024, PLUG fell below $2 per share.

That is partly because the company’s Q2 revenue of $143.4 million was 45% lower than last year’s $260.2 million. Plug Power also came up 23% short of analysts’ expectations.

In addition, the company took a net loss of $262.3 million, which was 11% worse than the $236.4 million loss last year. Plug Power’s diluted earnings per share of -$0.36 missed EPS expectations by 19.5%.

In addition to the revenue and earnings miss, the company is spending a substantial amount of cash. Plug Power had $1 billion in cash and equivalents at the end of the second quarter, down from $1.6 billion last year.

Despite those shortcomings, the hydrogen company still anticipates its 2024 revenue to range between $825 million and $925 million. Plug Power had $891 million in revenue in 2023.

Will Plug Power Stock Recover?

Plug Power is likely to recover because hydrogen margins are improving and that will lead to improved profitability. The company recently built a new plant at Woodbine, Georgia, that is touted as the largest electrolytic liquid hydrogen plant in the U.S.

The Georgia plant had increased production capacity and price increases in its hydrogen product portfolio that Plug Power said significantly improved its hydrogen margins in Q2. It was also able to leverage the Clean Hydrogen Production Tax Credit for the plant during the quarter.

Plug Power is spending its cash to build infrastructure, and it spent over $70 million on electrolyzer systems in Q2. The hydrogen company expects revenue from those systems, and the ones yet to be deployed, to make an impact on revenue in the second half of the year.

Plug Power also entered into a joint venture with Louisiana’s Olin Corporation, a chlorine and chlor alkali producer, to build a new plant that is scheduled to generate liquid hydrogen by the end of the year.

Still, the news that has had the most dramatic impact on PLUG is that the U.S. government rejected a deal between Talen Energy and Amazon. Talen Energy is a nuclear power producer that requested the federal government’s approval to increase the amount of power that is routed to an Amazon data center.

The proposal would have created the world’s first AI data center powered by nuclear energy, but U.S. regulators ruled that the proposed operation “could have huge ramifications for both grid reliability and consumer costs.”

The rejection of the Talen Energy deal led to a PLUG rally because many investors believed that a clean energy company like Plug Power would be an alternative source for data center energy. At this point, however, hydrogen ecosystems are costly, and there is no indication that the industry will see an uptick in data center deals.

What Do Analysts Say About Plug Power Stock?

Though retail investors are hoping for a Plug Power comeback, most Wall Street analysts are more reticent. Out of 27 analysts who have rated the stock, 14 assess PLUG to be a hold.

However, there are nine Buy ratings on the stock, and the highest forecast sees Plug Power shares rising by over 600% to $18 in the next 12 months.

The average price forecast of $3.96 per share still translates to a 57.8% increase from where the stock currently trades.

There are four Sell ratings on PLUG, and the lowest forecast has Plug Power shares dropping over 40% to $1.50.

Is Plug Power Stock Undervalued?

The analysts largely believe Plug Power has room to improve, though there is a wide range been high and low estimates. The stock looks somewhat attractive at a price-to-sales ratio of 2.7x, which is just below the S&P 500’s 2.8 P/S value.

However, competitor Bloom Energy has a P/S value of 1.7x. On the other hand, Air Products and Chemicals has a P/S ratio of 5.6x, though that stock does have an annual dividend yield of 2.31%

Is Plug Power Stock a Buy, Sell or Hold?

Plug Power doesn’t offer a dividend and it hasn’t engaged in any share buybacks. In fact, the company has continued to finance its operations by issuing new shares, which is a significant concern for investors.

The company’s revenue and earnings declines are equally concerning. It will likely take several years before Plug Power could reach profitability, and if the company continues to spend heavily, it might need to issue shares to stay afloat.

Though the government’s rejection of the Talen Energy proposal appeared to be a positive, there is little indication that any hydrogen energy company will step up to fill that gap, much less Plug Power.

In addition, though energy stocks will likely return to the limelight, there is no guarantee that hydrogen companies will play a significant role. That means that even though PLUG is at its lowest levels, it still might not be time to buy Plug Power.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.