What a fantastic six months it’s been for Plug Power. Shares of the company have skyrocketed 94.1%, hitting $3.80. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Plug Power, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Plug Power Not Exciting?
Despite the momentum, we're sitting this one out for now. Here are three reasons why PLUG doesn't excite us and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Plug Power’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.9% over the last two years. 
2. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Plug Power’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 149%, meaning it lit $149.08 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Plug Power burned through $653.4 million of cash over the last year, and its $680.5 million of debt exceeds the $223.2 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Plug Power’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Plug Power until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Plug Power isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at $3.80 per share (or a forward price-to-sales ratio of 5.5×). The market typically values companies like Plug Power based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at the most entrenched endpoint security platform on the market.
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