Plug Power's Success Train

In the second week in August, Plug Power (PLUG:  Nasdaq) reported financial results for the second quarter ending June 2022.  Sales totaled $151.3 million primarily from the sales of fuel cell systems.  The company also brought in fees from services related to its system as well as power purchase agreements and the sale of renewable fuel.  Altogether sales in the quarter grew 21% year-over-year.

Unfortunately, the cost of Plug Power’s sales activity was in excess of sales and operating expenses have increased in the last year.  Consequently, the company reported a net loss of $173.3 million or negative $0.30 per share.  The net loss deepened by 74% year-over-year as efficiency took a nose dive in the quarter.  Ouch!  Indeed, the company had to dip into the bank account for $195.2 million in cash to support operations in the June quarter.

On the surface the quarter report seemed to offer good news on healthy demand and possible capture of market share.  Profits appear to be a long way down the road given that the current production structure is not profitable and spending at the operating level is building. 

Yet investors seem to find the whole story something to celebrate.  The shares gapped higher on the quarter news and closed the week near a 52-week high price.  Indeed, at the time of this article the PLUG price level is well in overbought territory according to a popular technical indicator called the Commodity Channel Index (CCI).   

Some investors may be looking past near-term annoyances like a mushrooming cash burn, to the role that hydrogen is expected to play in the world’s future energy supply.  There are plenty of problems with conventional hydrogen that make it unpalatable in a sustainable renewable energy world.  Scientists have been doggedly trying to solve the deficiencies, giving hydrogen new appeal.  For example, electrolysis is becoming more efficient, making it cost effective to abandon the current natural gas steam reforming production method in favor of the low-carbon method of cracking water using electricity derived from solar power.  Storage and transport equipment has also been improved, removing some of the safety concerns inherent in handling hydrogen.

As a consequence of these technological accomplishments, hydrogen has taken a new position in world energy development.  At the end of 2020, in its Hydrogen Insights Report, the Hydrogen Council noted a total of 228 global hydrogen projects with a value of $345 billion.

Plug Power made a strategic investment in hydrogen, using its knowledge of polymer electrolyte membrane (PEM) to develop hydrogen electrolyzers.  Customers of its GenFuel hydrogen solution include stationary power producers, materials handling, and mobile power sources.  Management points to supply over 50 million hydrogen fills into the company’s fuel cells. 

Fortune Business Insights valued the global electrolyzer market at $490.4 million in 2022.  That may not seem very large.  The real excitement is in the estimated compound annual growth rate of 5.8% that is expected to take the sector to a value of $620 million by 2029.

The company is clearly at the forefront of an industry that is just getting started.  Investors prepared to invest for the long-term could be comfortable in buying a stock at peak prices in order to make certain they are on Plug Power’s success train.    

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.