Down 75%, Is Plug Power a Screaming Buy, or Will It Keep Plunging?

Plug Power's (NASDAQ: PLUG) stock has gotten pulverized over the past year. Shares are down by 75% over that time span, woefully underperforming the S&P 500's more than 12% rise over the same period. Several factors have weighed on the hydrogen company's stock price, including the dilutive share sales it engaged in to fund its operations and expansion.

However, while the shares are down sharply, there are some positive points to be made about the business. The question is whether those catalysts make the hydrogen stock a buy or if it will likely continue sinking.

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What has weighed on Plug Power?

Plug Power is coming off a challenging year. The hydrogen company's revenue declined from $891 million in 2023 to $628 million last year due to a 45% drop in the sales of equipment and related infrastructure. Meanwhile, its total operating expenses ballooned from $835 million in 2023 to nearly $1.4 billion in 2024. As a result, its net loss last year was more than $2.1 billion, up from nearly $1.4 billion in 2023.

The company burned through cash to fund its operations and expansion. Because of that, it needed to raise outside capital to plug the massive hole in its finances. One way it did that was by selling stock. For example, it raised $280 million by selling shares earlier this year. Those share sales boosted its outstanding share count by more than 28% last year, significantly diluting previous investors.

Putting the company on the road to profitability

Plug Power can't continue to burn cash forever. At some point, investors will stop giving the company fresh capital to stay afloat. The company's management team realized this, leading to a strategy shift last year.

The hydrogen company undertook several actions to reduce its cash burn and put itself on track to eventually become profitable. Part of its new strategy has been dubbed "Project Quantum Leap" -- a plan to optimize its operating footprint, resources, and ongoing expenses to reduce its annual expenses by more than $200 million.

Project Quantum Leap is part of a multiyear strategy to reach consistent profitability. Plug Power aims to grow its energy and applications businesses at 30% compound annual rates through 2030. This revenue growth will produce scale advantages, enabling the company to steadily march toward profitability. It expects to end this year with positive gross margin run rates. Management's goals are to reach positive operating income by the end of 2027 and overall profitability by the close of 2028.

Burning questions remain

A big issue for Plug Power has also been funding its operations and expansion. As mentioned, the company has routinely turned to dilutive stock sales to bridge the gaps in its finances. However, they've weighed heavily on the stock price, which is down by more than 99% since the company went public more than two decades ago.

Plug Power has been looking for other ways to fund its business. It closed a $525 million secured credit facility with Yorkville Advisors earlier this year. Plug also closed a nearly $1.7 billion loan guarantee from the U.S. Department of Energy in early January to support the development of six projects to produce zero and low-carbon hydrogen. As a result of these financing measures, the company doesn't anticipate making any additional dilutive equity offerings this fiscal year.

However, the company's loan guarantee was finalized under the Biden administration. There has been some speculation that President Trump might cancel it. Even if he doesn't, Trump might not be as supportive of hydrogen, which could impact Plug's ambitious sales growth targets. That could affect its profitability timeline and ability to raise additional capital in the future.

Too risky to buy

Plug Power has tremendous promise. The company is emerging as an early leader in the hydrogen sector. The anticipated rapid growth in demand for hydrogen could fuel robust growth for the company.

However, it will have to traverse a long road if it's going to reach profitability, and that road has many potential obstacles. Because of that, there's a high risk that Plug Power's stock could continue to sink in the near term, especially if it needs to sell more shares to fund its operations and growth. That makes it too risky for most investors to consider buying.

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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.