Shareholders of Plug Power would probably like to forget the past six months even happened. The stock has dropped 41.9% and now trades at a new 52-week low of $1.61. This may have investors wondering how to approach the situation.
Is now the time to buy Plug Power, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Plug Power Not Exciting?
Despite the more favorable entry price, we’re passing on Plug Power for now. Here are three reasons we avoid PLUG, plus one stock we’d rather own.
1. Lackluster Revenue Growth
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 shows its demand has slowed significantly as its annualized revenue growth of 4.3% over the last two years was well below its five-year trend. 
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
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 145%, meaning it lit $145.38 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 $523.4 million of cash over the last year, and its $735.7 million of debt exceeds the $161.9 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. Following the recent decline, the stock trades at $1.61 per share (or a forward price-to-sales ratio of 2.6×). 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 dominant software business in the world.
Stocks We Would Buy Instead of Plug Power
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