Plug Power Inc. (PLUG) delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, stationary power markets, and others.
Last month, PLUG announced its plans to develop three green hydrogen production plants in Finland, indicating some of the largest investments in the European market. The company expects the capital structure to include a majority of non-recourse debt, similar to other renewable asset financing.
However, the company reported poor financial performance in its recent quarter. Amid persistent inflation and concerns of an impending recession, the company could remain under pressure.
To that end, it might be best to steer clear of PLUG. In this article, I have discussed several reasons why it could be wise to sell the stock now.
The company faces challenges of high research and development costs as it invests heavily to innovate and improve its fuel cell technology. These costs are significant, especially in an emerging and rapidly evolving industry like hydrogen fuel cells. Moreover, developing and scaling up the manufacturing capabilities for fuel cell systems can be expensive.
While PLUG needs to stay innovative, differentiate itself, and maintain a competitive edge in terms of product performance, reliability, and cost-effectiveness, it requires substantial investments and coordination among various stakeholders.
Over the past nine months, the stock has fallen 65.5% to close the last trading session at $10.37.
Here are some factors that could influence PLUG’s performance in the upcoming months:
Disappointing Financials
PLUG’s gross loss widened 96.3% year-over-year to $69.39 million for the fiscal first quarter (ended March 31, 2023). The company’s operating loss widened 50.8% year-over-year to $209.80 million. Its net loss widened 40% year-over-year to $206.56 million. Moreover, its net loss per share widened by 29.6% from the prior-year quarter to $0.35.
Poor Profitability
In terms of the trailing-12-month EBIT margin, PLUG’s negative 93.54% compares to the industry average of 9.69%. Its negative 25.52% trailing-12-month gross profit margin compares to the industry average of 29.83%. Likewise, its negative 18.44% trailing-12-month Return on Common Equity compares to the 13.83% industry average.
Unfavorable Analyst Estimates
Analysts expect PLUG’s EPS for fiscal 2023 and 2024 to remain negative. Additionally, its EPS for the quarter ending June 30, 2023, is expected to remain negative. The company has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters.
High Valuation
In terms of forward EV/Sales, PLUG’s 4.27x is 151.8% higher than the 1.70x industry average. Likewise, its 4.83x forward Price/Sales is 267.2% higher than the 1.32x industry average.
POWR Ratings Show Weakness
It’s no surprise that PLUG has an overall F rating, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
The stock has an F grade for Sentiment, and Quality, in sync with its unfavorable analyst estimates and poor profitability.
It has a D grade for Value, consistent with its stretched valuation.
Within the Industrial - Equipment industry, PLUG is ranked #83 out of 90 stocks.
Click here to access the additional ratings of PLUG for Growth, Momentum, and Stability.
Bottom Line
With PLUG reporting a disappointing first-quarter financial performance, the company could continue to remain unprofitable in the upcoming quarters. Moreover, given its unfavorable analyst estimates, poor profitability, and higher-than-industry valuation multiples, investors could avoid the stock now.
Stocks to Consider Instead of Plug Power Inc. (PLUG)
PLUG has an overall POWR Rating of F, equating to a Strong Sell rating. One may also want to consider these other stocks within the Industrial - Equipment industry with an A (Strong Buy) or B (Buy) rating: EnerSys (ENS), Preformed Line Products Company (PLPC), and MSC Industrial Direct Company, Inc. (MSM).
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PLUG shares were trading at $10.78 per share on Tuesday afternoon, up $0.41 (+3.95%). Year-to-date, PLUG has declined -12.85%, versus a 14.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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