Is Plug Power Under $1.50 a Bargain or a Trap? Here's the Honest Answer.

Plug Power (NASDAQ: PLUG) has taken investors on a wild ride over the last year. While the company has seen periods of big valuation gains connected to some encouraging sales indicators and margin improvements, its share price has seen a huge pullback in recent months.

Plug Power is now down roughly 52% over the last year of trading, and it's priced near its 52-week low. Additionally, the stock is down roughly 67% from its one-year high and 97% from its peak over the last five years. With the stock trading below $1.50 per share as of this writing, is Plug Power a bargain or a trap?

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Plug Power is still a high-risk, high-reward play

While Plug Power stock has seen massive pullbacks, that doesn't mean that it's a low-risk play. The hydrogen fuel technologies specialist remains a speculative bet, and there are serious questions about the business's long-term viability.

Plug Power's potential to be a winner for long-term shareholders hinges on technological improvements and operational ramp-up that enable the business to harness economies of scale, reducing production costs and improving margins.

In the second quarter, Plug Power's revenue grew roughly 9% year over year to reach approximately $178 million. Meanwhile, the business recorded a breakeven period in terms of gross margin. That performance represented a substantial improvement over the -31% gross margin it recorded in the prior-year period, but it's still a long way away from a level that will allow the business to be sustainable.

Plug Power posted a net loss of roughly $190 million in Q2 and said in a pre-earnings release for the third quarter that it held roughly $134 million in cash and equivalents. The company has made significant progress reducing its operational expenses and said that its net cash usage for Q3 was just $28 million, but interest expenses and changes in the value of its convertible debt instruments suggest that the business will record another large loss in the period.

Plug Power said it did not raise any cash through its at-the-market stock offering program or other equity sales or take on new debt in the period, but potential investors should approach the stock with the understanding that the company will likely continue to fund its operations through the sale of new stock. The company has increased its outstanding share count by more than 140% over the last five years, and higher borrowing costs make equity sales a more likely capital raising vehicle than loans right now.

Investors should also keep in mind that the company's capital expenditures don't show up as loss drivers because they are recorded as assets. This means that continued stock dilution is a very likely outcome. At current pricing levels, Plug Power stock offers outsize upside potential and could deliver huge returns if demand increases and margins continue to improve. On the other hand, investors should understand that it's probably more likely that the stock will continue to lose ground.

Keith Noonan 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.