Why Is Wall Street So Bearish on Plug Power? There's 1 Key Reason.

Key Points

• Hydrogen fuel demand should grow over the coming decades.

• It's not clear how much Plug Power will be able to benefit.

• 10 stocks we like better than Plug Power ›

Plug Power (NASDAQ: PLUG) is a pioneer in the hydrogen sector, and analysts generally think hydrogen fuel has a bright future. Forecasts regarding the industry point to major growth in hydrogen supply and demand over the coming years. Some estimates believe this growth will be sustained for decades to come.

Why, then, has Wall Street been so bearish on Plug Power stock over the past few years? There's one glaring culprit.

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Plug Power stock is difficult to recommend

On paper, Plug Power is a growth stock. The company is a major designer and manufacturer of hydrogen fuel systems, a market that is expected to grow by leaps and bounds through the year 2050. Digging deeper, however, reveals a more complex story. The complexity is why many analysts are bearish on the stock. Morgan Stanley, for example, predicts more than 50% downside potential for Plug Power over the next 12 months.

Image source: Getty Images.

The biggest issue with Plug Power stock right now is the timeline for sizable growth in this industry. Yes, hydrogen fuel has a bright long-term future. But for now, hydrogen fuel isn't cost-competitive with existing power sources like wind, solar, or conventional fossil fuels. In recent years, hydrogen fuel has grown even less competitive, given rising capital costs and lower-than-expected demand. These factors recently caused global consultancy McKinsey & Company to slash its demand forecasts for the year 2050 by 10% to 25%.

Why is this such a problem? Because after two decades in business, Plug Power remains a money-losing enterprise. Last quarter, for instance, the company posted a net loss of $229 million. Over the past five years, the company has never posted a positive net profit.

With hydrogen demand scaling later and more slowly than previously thought, Plug Power will remain in a tough spot financially, causing analysts to remain bearish on the stock despite the industry's long-term potential.

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Ryan Vanzo 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.