Momentum traders love Plug Power stock. Should you?
Shares of hydrogen fuel cell company Plug Power (PLUG 13.39%) soared 16.1% through 1 p.m. ET Wednesday, but here’s the thing:
There doesn’t seem to be any good reason for the rise.
Image source: Getty Images.
Introducing Plug Power
Plug Power bills itself as “a first mover in the [hydrogen] industry,” manufacturing everything from electrolyzers to liquid hydrogen to entire “fuel cell systems, storage tanks, and fueling infrastructure.”
That’s both good and bad for investors.
The good side of being a “first mover” is that it promises early investors a ground-floor investment in what Plug predicts will one day become a “global hydrogen economy” replacing the use of traditional fossil fuels.
The bad news is you’re investing in a start-up that’s actually been “starting up” forever. Plug’s spent the last 28 years promising investors profits, without ever earning even one cent. It’s also supposedly a growth stock…but saw its revenues shrink nearly 30% last year.
Is Plug stock a buy?
Analysts who follow Plug Power stock do think Plug will turn profitable eventually — but no sooner than 2030. And the big risk for investors is that Plug will run out of money before it ever begins earning a profit.
Plug has only about $140 million in the bank right now, against nearly $1 billion in debt. It’s also burning more than $800 million per year. To keep this game going, Plug must either go deeper into debt or issue even more stock (its share count has doubled over the last two and a half years), diluting current investors out of even more of their hoped-for future profits.
To me, Plug Power stock looks a lot more like a sell than a buy.
Rich Smith 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.