These factors can fuel growth for Plug Power (PLUG). Is the stock a buy?

Hydrogen fuel cells are considered among the most environment-friendly energy sources, having the potential to transform industries like transportation and manufacturing. Plug Power Inc. (NASDAQ: PLUG), which operates an extensive hydrogen network in the U.S, is the frontrunner in the race to capture the fuel cell market.

Buy the Dip?

Shares of the New York-based green energy company have suffered a big loss since hitting an all-time high more than a year ago. However, their recent performance indicates the downturn is probably over. According to experts, the value would almost double in the next twelve months, which is good news for those looking for an entry point. After the steady decline, the stock has become very cheap, creating a rare buying opportunity.

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Plug Power’s bottom-line performance has not been very impressive and that disappointed shareholders, but the company’s pioneering technology and strong balance sheet – healthy cash balance and low debt — give it an edge over rivals. Margins have been under pressure due to higher costs lately, mainly due to the pandemic-driven supply chain disruption. But profitability is expected to improve going forward, supported by additional revenues from the recent acquisitions of Frames Group and Applied Cryo Technologies.

The FCEV Push

Encouragingly, the market seems to the waking up to the benefits of hydrogen fuel cells, if the favorable stance adopted by auto majors like Daimler and BMW is any indication. Moreover, the applications of fuel cells are not limited to the automobile industry, rather there are several industries where hydrogen is the preferred fuel source. And, Plug Power is well-positioned to tap into those opportunities.

Experts have been skeptical about the commercial viability of the technology used in fuel cells, though it is being touted as the future of environment-friendly transportation. The problem is that the process involved in the production and storage of hydrogen fuel cells is highly complicated and expensive compared to the other fuels currently available.

Road Ahead

Long-term growth prospects would depend on the company’s ability to compete effectively with electric vehicle brands, which are more popular than their hydrogen fuel cell counterparts. At the same time, it is not easy to grow the business in a market dominated by fossil fuel-powered vehicles.

From Plug Power’s Q3 2021 earnings conference call:

“We are the largest user of liquid hydrogen in the world and are building a green hydrogen network that is resilient and is not burdened by fluctuating commodity pricing. We have taken the burden in managing the hydrogen network, so our customers always have hydrogen. Our competition is electricity and for large customers, as electricity is always there and with long-term contracts, pricing is consistent. With our green hydrogen network across the U.S, we can be the same.”

Loss Widens

In the third quarter ended September 2021, the company’s net loss widened to $106.7 million or $0.19 per share from $65.2 million or $0.18 per share in the same period of the previous year. Meanwhile, revenues increased 34% year-over-year to $143.9 million. The results missed Wall Street’s prediction. During the quarter, the company shipped 4,559 GenDrive units. Plug Power is scheduled to publish its fourth-quarter results on March 10 after the regular market hours.

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Plug Power’s market value more than halved over the past twelve months. The stock contracted around 25% so far this year and underperformed the market.