Three months ago, Plug Power (NASDAQ:PLUG) issued a Form 10-Q in which it raised “substantial doubt about” its “ability to continue as a going concern.” Is it possible that Plug Power sufficiently resolved its issues in three months’ time and is now in a position to recover?
That’s the billion-dollar question, and as usual, there are no definitive answers. Still, at least it appears that the market is pleased with Plug Power’s reassuring verbiage in a new quarterly report. Whether the hydrogen fuel cell manufacturer is actually turning a corner is debatable though.
Waiting for proof points
Before looking toward Plug Power’s future, it’s important to understand how the company ended up issuing the dreaded “going concern” warning in the first place. From a mathematical perspective, the path to potential insolvency is paved with a widening net loss: $283.479 million in the third quarter, as opposed to $170.758 million in the year-earlier quarter.
Moving from the quantitative to the qualitative, Plug Power acknowledged in Q3 2023 that it had “experienced supply chain issues relating to the availability of hydrogen.” However, according to Barron’s, Canaccord analyst George Gianarikas acknowledged in a report that “many companies he follows have experienced similar supply-chain problems.”
Of course, this didn’t mean that Plug Power had an easy runway to recovery.
Gianarikas halved his PLUG stock-price target from $10 to $5, remarking, “We, nevertheless, await additional profitability proof points, stabilization in operations, and additional guidance from [the] Treasury before turning more positive on the stock.”
Plug Power can’t control what the U.S. Treasury Department does, but it may still have opportunities to provide one or more “profitability proof points.” RBC Capital Markets analyst Chris Dendrinos didn’t seem particularly hopeful though. According to Barron’s, Dendrinos estimated that Plug Power “could need an additional $750 million or more to boost its liquidity over the next 12 months.”
The market evidently wasn’t very hopeful either. Dendrinos slashed his target price on PLUG stock from $12 to $5, and by the last day of February, the share price was already down to $3.60.
However, the winds of sentiment are prone to sudden shifts on Wall Street, and sellers quickly became buyers on March 1 as Plug Power stock rallied 10% that day. The question is whether investors detected a “profitability proof point” or two.
That’s debatable, but there was a fresh financial report to pore over. Something positive must have been in there somewhere, as even a volatile asset like PLUG stock doesn’t jump 10% without provocation.
Not a “going concern” anymore, but concerns remain
Indeed, there was sufficient cause for a single-day relief rally. In its latest Form 10-K, Plug Power expressed confidence that its access to capital “will be sufficient to fund its on-going operations for a period of at least 12 months subsequent to the issuance of the accompanying consolidated financial statements.
Consequently, Plug Power’s management now assures investors that “substantial doubt about the company’s ability to continue as a going concern no longer exists.”
In an accompanying press release, Plug Power reiterated this point, declaring that “there is no longer substantial doubt of the company’s ability to continue as a going concern.”
However, in this press release, Plug Power replaced the “at least 12 months” verbiage with, “The company has determined it has sufficient cash on hand coupled with available liquidity to fund its ongoing operations for the foreseeable future.”
That’s something Plug Power’s downtrodden shareholders can hang their hopes on, no doubt. At the same time, Plug Power failed to provide a real “profitability proof point” in its annual report.
As it turns out, the fiscal year that ended on Dec. 31, 2023 concluded with Plug Power recording a net loss of $2.30 per share, versus a loss of $1.25 per share in the prior fiscal year. Moreover, this result was worse than the analysts’ consensus estimate of a loss of $1.58 per share.
On the other hand, Plug Power generated $891.34 million in full-fiscal-year revenue, compared to $701.44 million in the previous year. Again though, there was a miss as Wall Street had called for Plug Power to report $915.6 million in annual revenue.
Thus, even if Plug Power resolved its “going concern” issue for the time being, concerns still remain. The company had $822.2 million worth of working capital at the end of last year, and investors should monitor Plug Power’s expenditures as much as its incoming revenue in 2024.
With that, investors might wait to see if Plug Power can generate robust revenue this year from sales of green hydrogen fuel-cell storage systems for data centers. Very indirectly, Plug Power might end up benefiting from the artificial intelligence (AI) trend.
However, until more data indicates a real “profitability proof point” for Plug Power, it’s wise for prospective investors to watch, wait and see what concerns (“going” or otherwise) might arise in the coming quarters.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
