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When the Inflation Reduction Act was passed into legislation, it spotlighted clean energy companies, and although the stocks were declining, it gave hope to investors. 

Financial pros started looking for names to put on their radar. The number one searched hydrogen and fuel cell stock over the last month has been Plug Power (PLUG). 

Amazon (AMZN) struck a deal with PLUG in August to power some of its operations with hydrogen. Part of the deal gives Amazon the right to buy up to 16 million PLUG shares.  

Shares of PLUG are down nearly 50% from its 52-week highs, but is now the time to get in?

Plug Power’s Business

Plug Power (PLUG) offers the world’s only turnkey hydrogen and fuel cell solution. Its end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics acquisitions, on-road electric vehicles, the stationary power market, and more.

The company manufactures and sells fuel cell products to replace batteries and diesel generators in stationary backup power applications.

PLUG has an impressive customer list: Amazon, Walmart, FedEx, The Home Depot, NASA, Boeing, and AT&T.  

The firm segments its business into the following categories: 

• Sales of fuel cell systems, related infrastructure, and equipment
• Services performed on fuel cell systems and related infrastructure
• Power purchase agreements
• Fuel delivered to customers and related equipment

A significant portion of its revenues comes from fuel cell systems, related infrastructure, and equipment sales. 

Financials

PLUG has 5x its revenues from 2017 to 2021, going from $100.1 million to $502.3 million. 

This is shaping up to be the firm’s best, with projections of $900 to $925 million. Moreover, clean energy legislation and the green hydrogen production tax credit should help its business immensely. 

The firm is sitting pretty, with $3.1 billion in total cash and total debt of $822.1 million. This is further evidenced by its current ratio, which stands at 9.1x. 

Valuation

PLUG has not reached profitability yet, so it doesn’t have a P/E GAAP ratio. But the same is true for its competitors, Ballard Power Systems (BLDP), Bloom Energy (BE), and FuelCell Energy FCEL). Cummins Inc. (CMI) is not a pure play on hydrogen and fuel cells. However, it has the most advanced hydrogen fuel cell technology. The firm has a P/E GAAP ratio of 14.6x.

PLUG has a price-to-sales ratio of 21x, significantly larger than its competitors. BLDP is at 18.1x, BE is at 3.6x, FCEL is at 12.4x, and CMI is at 1.2x. In addition, PLUG trades at an outrageous 16.5x enterprise value to sales ratio. BLDP is at 8.8x, CMI is at 1.1x, BE is at 5x, and FCEL is at 10.4x.

Profitability

Good thing PLUG has the cash to burn because it has yet to become profitable. The firm has a profit margin of -105% and an operating margin of -94%. Its gross profit margins are negative at -20%. Meanwhile, BLDP, CMI, and BE have positive gross profit margins. Besides CMI, the entire group has a negative return on equity and return on assets. 

PLUG loses -$516 million cash from operations. Only CMI is positive at $2 billion. Luckily, the government supports the group because, alone, they would struggle. 

Growth 

PLUG is experiencing solid growth. In 2021 it did $502 million in revenue, and this year it’s on pace to hit $900 million in revenues. Its quarterly revenue growth (YoY) is 21.4%. BLDP had -16% quarterly revenue growth (YoY), CMI at 7.8%, BE at 6.5%, and FCEL at 60.7%.

Our Opinion 5/10

Shares of PLUG are down 17% year-to-date and nearly 50% off their 52-week highs. The company has a bright future with the government supporting clean energy legislation. Moreover, it has a strong relationship with Amazon and deals with Microsoft proving its world-class technology.  

However, it has a rich valuation. 

Any hiccups in execution can send the stock spiraling downward. 

We like the company but will only be buyers of dips. It’s too expensive at these levels.