Plug Power (NASDAQ:PLUG) stock experienced wide volatility in July. However, its recent drop suggests this may be an opportune time to buy the dip. Plug Power stock rose earlier in the month before falling 15% last Friday, July 19, bringing the 1-year losses to 80%.
The recent crash occurred after the company announced plans to sell $200 million in additional shares, representing around 11% of Plug Power’s current market capitalization. However, its PLUG stock price has since found support at around $2.30. Prices have stabilized three times so far this year at this level.
The recent movement reflects the market pricing in the dilution from the additional Plug Power shares. However, now that the capital raise is complete, it is unlikely further shares will be issued in the near future. This may allow Plug Power stock a clearer path higher.
Growth Trajectory Remains Intact
Plug Power (NASDAQ:PLUG) is focused on developing and commercializing hydrogen fuel cell systems and technologies as alternatives to conventional batteries and combustion engines.
The company operates in various segments, including supply chain and logistics applications, on-road electric vehicles and stationary power markets. This positioning makes it a key player in the global energy transition away from carbon.
Hydrogen fuel cell technology remains at an early stage. However, market size is projected to grow substantially as combustion vehicles are phased out.
Industry analysts forecast over 20% annual growth, increasing the hydrogen fuel cell market from just under $3 billion last year to $18.9 billion over the next decade. Notably, Plug’s 3-year revenue growth stands at 134.55% and EPS at 16.32%.
Neither Plug Power’s business fundamentals nor the hydrogen fuel cell market outlook have changed as a result of the recent capital raise. The company remains in startup mode and is not yet profitable.
However, it expects its hydrogen business to approach gross margin break-even by Q4 2024, which would be a major accomplishment. Cash reserves also increased over the past year, indicating prudent funds management.
On the flip side, losses widened in the first quarter compared to the previous year’s period. Yet, significant players like Ballard Power Systems (NASDAQ:BLDP) and FuelCell Energy (NASDAQ:FCEL) also faced similar challenges. Their stock prices are in fact more overvalued than PLUG’s relative to sales.
High Risk but High Reward Potential
Plug Power operates in a challenging environment and is experiencing cash losses.
One concerning aspect is that it sells hydrogen at a loss, as it must purchase from third parties. This has resulted in negative gross margins historically.
However, the objective was to gain customers so that it could establish its own large-scale production facility and profitably while selling from its own production.
Plug Power today has strategic agreements with several major companies, including Airbus (OTCMKTS:EADSY), Lhyfe, Edison Motors, Phillips 66 (NYSE:PSX), Apex Clean Energy, BAE Systems (OTCMKTS:BAESY) and Universal Hydrogen.
It has also increased production at its Georgia and Tennessee facilities along with bumping up consumer prices. This provides an opportunity to improve gross margin later in the year. In addition, Plug Power has implemented cost-saving measures, including head count reductions, to enhance long-term sustainability and profitability.
In the interim, the company generates substantial income through grants to reduce the cost of hydrogen production. Recently, it secured $163 million from the Department of Energy, which compares to last quarter’s total revenue of $68.3 million.
Despite these difficulties, analysts remain largely optimistic regarding the Plug Power stock prospects. The consensus is that the company will improve its earnings trajectory starting last quarter. It reports Q2 earnings in mid-August, with revenue forecast to grow 47% next year.
Although the Plug Power share price has declined 44% this year, analysts have maintained their recommendations They assign an average price target of $4.84 per share. The current price implies a potential upside of around 92% over the next year or so.
The Bottom Line: Plug is Attractive for the Risk Tolerant
Plug is in an emerging hydrogen fuel cell market and needs to scale to become profitable. It is building a large facility in Texas that will be completed next year, with interim costs likely to increase.
Conversely, it received substantial government grants, a share issuance and a $1.66 billion loan for its Texas facility.
Overall, the investment has high risk but potential high returns, depending on hurdles cleared in the coming months. The expanding market could drive long-term growth, but near-term challenges in scaling must first be overcome.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.