Plug Power (PLUG -3.75%) stock has a history of soaring in value. Once, in a single year, shares increased 36 times in value. A $500 investment would have grown into $18,000 in just 12 months.
Plug Power's management team is arguing that the company's best days are ahead of it. Could shares double again over the next five years?
Expect Plug Power stock to be volatile
Plug Power has an extremely volatile history, full of huge ups and downs. That's because, in many respects, the company's value is fueled by expectations.
With a history stretching back to 1997, Plug Power is focused on developing and scaling hydrogen fuel cell systems, a potential solution for replacing a world built on fossil fuels. There are both "dirty" and "clean" methods of producing hydrogen fuel, but because the technology relies on chemical reaction instead of combustion, water and heat are the only direct byproducts. Large parts of the economy could switch to using renewable hydrogen-derived energy -- everything from planes and cars to home electrification.
The potential of hydrogen fuel cell systems is clearly huge. According to global consulting firm Deloitte, "Decarbonising hard-to-abate sectors like steelmaking, chemicals, aviation, and shipping will likely require global hydrogen use to grow sixfold." By 2050, the firm believes, clean hydrogen could become a $1.4 trillion industry. With a market cap of just $2 billion, many investors are seeing dollar signs with Plug Power stock, but don't get too excited yet. A few major problems remain.
The first issue is that 2050 is very far off. Betting that a single company will be the beneficiary of a multidecade trend that may or may not occur is a difficult game. The second issue is that hydrogen fuel isn't competitive right now. From a cost perspective, there's little reason to choose hydrogen over wind, solar, nuclear, fossil fuels, or conventional batteries. Despite their long-term bullishness, Deloitte still believes it could take up to a decade for clean hydrogen to become cost-competitive. In the meantime, companies like Plug Power will remain heavily reliant on subsidies, government grant programs, and small batches of early adopters.
PLUG Total Return Level data by YCharts
Then there's the issue of Plug Power's technology itself. Its technology is less efficient than many emerging chemistries, and large potential customers like Toyota and Hyundai are investing heavily in producing their own fuel cells. While the Inflation Reduction Act introduced tax credits for hydrogen production and distribution, these subsidies could ultimately fuel investment into technologies that ultimately displace Plug Power's offering.
All of these considerations result in huge levels of uncertainty. Will clean hydrogen ever prove economically viable at scale? When will this tipping point happen? Which chemistries will win? Which companies will pioneer and command those chemistries? These questions won't be answered in 2024. It could be a decade or more before we know for sure. Until then, expect hydrogen stocks like Plug Power to remain volatile, with huge swings up and down reflecting the market's sudden reactions to what might ultimately become of the business far down the line.
Survival in 2024 isn't a guarantee
There's one final piece to the Plug Power puzzle: its financials. The company has expanded heavily in recent years. In 2020, the company had 50,000 square feet of manufacturing capacity. Today, it has nearly 1 million square feet of production facilities. This growth required huge amounts of financing. Since 2020, Plug Power's share count has nearly tripled. The company has also aggressively pursued government grants and loans -- arguably the only entity wiling to lend it large sums of money.
It's an open question whether Plug Power will survive until the end of 2024. Sizable share dilution will likely keep the company afloat, but there's no doubt that further outside assistance will be necessary. Unless, that is, the stock price skyrockets again like in 2020, allowing the company to raise capital off an inflated share price.
Could shares double over the next five years? Sure. As previous runs proved, it wouldn't take much for this to happen. Perhaps renewed excitement in hydrogen sends the stock price soaring yet again. Or, perhaps the company finally loses the faith of the market. If government subsidies fail to materialize, insolvency in 2024 could become a reality.
The bottom line is that anything can happen to Plug Power stock from here. Whatever the future holds, this stock is more of a gamble than an investment. Unless you feel like gambling, steer clear of Plug Power.
