Plug Power: There's No Bottom In Sight - Sell And Move On

Summary

  • Plug Power's Q1 card was nothing short of a disaster, as it missed estimates on revenue and profitability. The company was impacted by natural gas costs and supply chain snarls.
  • We believe that Plug's path to profitability by 2025 could be at significant risk. Furthermore, the Street analysts haven't proved that they could model its profitability accurately.
  • We urge investors to get out of PLUG stock. The stock also broke below a key consolidation zone, with no bottom in sight.
  • We revise our rating on PLUG stock from Hold to Sell.
  • I do much more than just articles at Ultimate Growth Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

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Investment Thesis

Plug Power Inc. (NASDAQ:PLUG) recently reported an underwhelming FQ1 earnings card, as its margins came under significant pressure. The company reported that the surge in natural gas costs had impeded its profitability.

But, keen investors in PLUG should be well aware that the company is still operating a deeply unprofitable business. Moreover, with highly challenging macros and a more aggressive Fed, the market didn't welcome its weak Q1 card.

In an early April update, we also discussed why we decided to get out of PLUG stock. Investors need to consider carefully that PLUG stock still traded well above its 2020 COVID bottom, despite being 80% off its pandemic-induced highs. Given the significant collapse in many unprofitable growth stocks that rode the speculative bubble in 2020, we think PLUG still has plenty of room to fall.

Moreover, our price action analysis also suggests that PLUG finally broke below a decisive consolidation zone. Before breaking down, it validated our suspicion that it had been stuck in a two-year distribution pattern. As a result, the stock could have been thrown into the "abyss" from here, with a free fall down to an undetermined support zone.

Therefore, we revise our Hold rating on PLUG stock to Sell. We urge investors to bail out of PLUG stock before it falls further. In addition, also consider using any follow-on rallies to reduce exposure further.

More Losses And More Pain

Plug Power revenue change % and adjusted EBIT margins % consensus estimates

Plug Power revenue change % and adjusted EBIT margins % consensus estimates (S&P Capital IQ)

Plug Power GAAP EPS $ consensus estimates

Plug Power GAAP EPS $ consensus estimates (S&P Capital IQ)

Plug Power reported revenue of $140.8M in FQ1, up 95.7% YoY. However, it came in well below the consensus estimates of $145.7M, up 102.5% YoY. Moreover, the surge in natural gas prices and supply chain disruptions significantly impacted its adjusted EBIT margins. As a result, Plug Power reported an adjusted EBIT margin of -97.1%, well below the consensus estimates of -57.8%. Consequently, its GAAP EPS of -$0.27 also fell significantly below the estimates of -$0.16. In addition, the GAAP EPS estimates for future quarters have also been revised downwards to reflect the harsher economic realities.

Despite badly missing the estimates, Plug took the opportunity to remind investors about its mission. CEO Andrew Marsh accentuated (edited):

Plug's future is not based on the economy today, but on the future economy. But let me highlight the present is very bright. In the present, how many companies will increase by over 80% this coming year in revenue? (Plug Power's FQ1'22 earnings call)

Despite management's attempt to assuage investors' concerns about its revenue growth cadence, it glaringly missed out on its profitability underperformance. It was as if it wasn't necessary.

Furthermore, several structural headwinds could continue to impede its profitability as Europe navigates its new natural gas realities with Russia. As a result, PLUG's path to its targeted 17% adjusted operating profitability by 2025 could be at risk. Given the significant miss in its Q1 estimates, we don't think the Street could even model Plug's business accurately.

Also, without near-term guidance on its profitability from management, the Street's estimates could continue to underperform, impacting the validity of its valuation models. We also find it highly challenging to model its negative free cash flows with much veracity and, consequently, its valuation.

Is PLUG Stock A Buy, Sell, Or Hold?

PLUG stock NTM FCF yield % and NTM normalized P/E

PLUG stock NTM FCF yield % and NTM normalized P/E (TIKR)

PLUG stock price chart

PLUG stock price chart (TradingView)

When we decided to get finally get out, it was easy. We urge investors to sell PLUG stock and not look back. Its NTM FCF yield (-10.94%) remains well in the red. Its NTM normalized P/E of -34.78x also corroborated our decision to get out.

Furthermore, we also noticed a series of traps laid to lure buyers into the stock, as seen above. In addition, the stock also broke below its consolidation zone over the last two years. Such breaks have been consistent with unprofitable growth stocks headed for their COVID bottoms.

Moreover, PLUG stock remains well above its COVID bottom of $2.53. So, will PLUG stock finally head to its COVID bottom? Ultimately, there's no way to tell. But, we suspect a breakdown in its price action portends much more pain ahead. And there's no telling where this could end yet.

Therefore, we revise our rating on PLUG stock from Hold to Sell.

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