Plug Power Just Cut Its Losses in Half. Is It Time to Buy the Hydrogen Stock?

Plug Power's (NASDAQ: PLUG) turnaround strategy is showing meaningful progress. The pioneering hydrogen company's adjusted net loss fell by more than half in the second quarter, plunging from $0.18 to $0.07 per share.

That might have investors wondering if now's the time to buy the hydrogen stock. I don't think that time has arrived just yet. Here's what I still want to see.

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Meaningful improvements where it matters most

Three factors enabled Plug Power to cut its adjusted net loss by more than half in the second quarter. The hydrogen company's revenue rose 9% compared to the first quarter to $178 million (and 2.5% from the year-ago period). While that's a slowdown from the 22% growth it delivered in the first quarter, the company still more than offset weaker equipment sales in the second quarter with brisk service revenue growth.

Plug Power also continues to drive down expenses. Its operating expenses dropped 50% year-over-year to $62 million, as its Project Quantum Leap is delivering tangible cost savings.

These two factors have enabled the company to achieve breakeven on its gross margin. That's a vast improvement from last quarter (-13%) and the year-ago period (-31%). Its gross margin should continue to improve as revenue increases while it maintains cost discipline.

What's driving the growth?

Growth has been elusive for Plug Power in recent years. However, that trend has started to reverse this year, with accelerating momentum. Plug Power is raising its full-year revenue growth forecast to 15%-16%.

Services revenue skyrocketed 82% in the second quarter to around $30 million, driven by its growing installed base and expanding recurring aftermarket revenue. This is now high-margin revenue for the company (27% in the quarter).

Meanwhile, the company deployed 1,666 GenDrive fuel cell units in the quarter, more than double the year-ago total (739). Deployment should continue growing. Two of its largest materials handling customers are planning to refresh more than 20,000 GenDrive units over the next three years. Customers upgrading to Plug's newest generation fuel cell technology represents a meaningful recurring revenue opportunity for the company.

What I'm still watching

Plug Power is clearly making progress. However, the company still has some work to do. While its cash burn rate has improved dramatically (down 58% from the first quarter), it still used $61 million in cash during the quarter. As a result, liquidity remains a concern. It ended the second quarter with $162 million in net cash, though it's generating additional liquidity through asset monetization and other non-dilutive financing, including $80 million after quarter-end.

Liquidity will remain an issue until the company reaches profitability, which will take a while. It's still on track to exit this year with positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Meanwhile, it expects to reach overall profitability by the end of 2028.

Not there yet

Plug Power is clearly making progress on its turnaround plan. However, it's not there yet, making it a speculative investment. A lot has to go right for a company that has a long history of missing the mark. That's why I wouldn't buy shares yet; there's still too much execution risk here for me. There are other clean energy companies I'd buy over Plug Power these days.

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.