Plug Power Stock: A Deep-Value Investment or a Dangerous Holding?

For many investors, Plug Power (NASDAQ: PLUG) may seem like the ultimate long-term buy, given the world's ongoing energy needs. To others, however, it's a stock full of risk that isn't worth buying. In the past five years, the stock has lost a mammoth 97% in value.

There are undoubtedly both significant risks and opportunities that come with Plug Power stock. Has it become such a cheap stock that it is a deep-value buy, or is it destined to go even lower?

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The big risk around Plug Power

Plug Power has an ambitious goal of creating a hydrogen ecosystem that will be a zero-carbon energy source. If successful, the company could help address the world's growing energy needs and likely soar in valuation. That's the bullish cash for the stock.

But simply surviving and being able to get to a point where the business is self-sufficient and no longer burning through tons of cash is the biggest risk around the company. Growth opportunities are one thing, but massive losses are another. If the business can't drastically reduce its cash burn and improve its earnings, the stock is likely to be a dilution machine for the foreseeable future.

In the past 12 months, the stock has reported net losses of more than $2.1 billion. It has used up more than $518 million in cash from its operating activities. These are very large and concerning numbers for the business, and investors need to be aware of the risk that comes with the stock as a result of them.

Potential doesn't equal payoff for investors

Plug Power's investor presentation points to massive opportunities in the electrolyzer market, which it says is projected to grow from less than $2 billion last year to $40 billion by 2032. Electrolyzers are used to split water into hydrogen and oxygen, and they represent a key part of the company's long-term growth strategy.

It's an exciting opportunity for Plug Power. But given the poor state of its financials, there's no guarantee that it will be able to survive for that many years, much less take advantage of the growth opportunities that might exist by then. You may be bullish on hydrogen energy solutions, but that doesn't mean that any company that's involved in the industry will be a good buy.

Plug Power is an extremely risky stock, and while it does have potential, taking a wait-and-see approach here seems appropriate. There's plenty of room for it to fall even lower in valuation, as its market cap remains over $3 billion.

David Jagielski, CPA 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.