What To Know Before Buying Plug Power Stock

Plug Power (NASDAQ: PLUG) is a very popular stock. Powering its popularity is its low stock price and focus on the potentially enormous hydrogen market. Investors believe the company has the potential to produce massive gains in the future.

Here are the two most important factors investors need to know before investing in Plug Power.

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Plug Power has enormous growth potential

Plug Power is a leader in developing hydrogen solutions, including electrolyzers, hydrogen production plants, and fuel cells for the material handling sector. Forecasters believe that the electrolyzer market alone could grow from around $1.8 billion this year to as much as $78 billion by 2030. Meanwhile, the electric materials handling equipment market is already over $14.4 billion and growing.

The company also sees significant potential for its advanced hydrogen fuel cells in supporting the surging power demand of data centers. It has recently launched an initiative to collaborate with a U.S. data center developer to explore opportunities to provide auxiliary and backup power solutions to data centers. This deal enhances the company's ability to capture new opportunities in this high-growth market.

Plug Power's financial profile has been a problem

While Plug Power holds a lot of promise, the company also has a big problem. Plug Power's operations are losing a lot of money, causing the company to burn through cash to operate and expand its business. For example, Plug Power posted a $363.4 million net loss during the third quarter on only $177.1 million of revenue. While the company's actual cash burn rate was much lower at $90 million in the quarter, it ended the period with only $166 million of unrestricted cash and cash equivalents on its balance sheet. That didn't give it much breathing room.

The company launched its Project Quantum Leap earlier this year to improve its margins and cash flow. It has also undertaken several actions to bolster its liquidity. Plug Power recently raised $399 million in new debt, which enabled it to repay all its remaining high-cost 15% debt, refinance its 2026 convertible notes, and eliminate the first lien previously held by its former debt provider. This refinancing, along with its data center infrastructure agreement, positions the company to fully fund its current business plan.

The company believes it's now on the path toward sustainable operations and profitability. It expects to exit next year producing positive earnings before interest, taxes, depreciation, and amortization (EBITDA), achieve positive operating income by the end of 2027, and finally reach overall profitability as it exits 2028.

A high-risk, high-reward hydrogen stock

Plug Power has tremendous growth potential. However, the company's financial profile has plagued it in the past. While Plug Power believes it's finally on the right track, it's a very high-risk stock. If Plug Power falls short of its growth expectations or requires additional capital to fund its expansion, its share price could take a big hit.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.