Is Plug Power A Buy After Sales Rise 106%?
Back in July I showed you 4 Reasons To Avoid Plug Power stock to protect your retirement portfolio.
Today, I want to give you an update on them and answer the question – Is Plug Power A Buy After Sales Rise 106%?
You can read that past article in full by using the link above…
But if you don’t want to; here’s a quick recap of what I said back in the Summer about it…
- It’s Got A Huge Amount Of Debt
As a percentage of its balance sheet, Plug Power (PLUG) is enormously indebted.
The most recent quarter showed its balance sheet is made up of 85.3% of total liabilities. And its debt-to-equity ratio is 4.25.
And over the last decade its balance sheets gone from 27.5% total liabilities in 2010 to the 85.3% it is today… But I’ll talk more about this in Reason #3 below.
I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
Plug Power has the opposite problem – in too much debt on an individual basis. And this makes it enormously risky.
I usually invest in companies that have debt to equity ratios at 1 or below. Plug Power’s is 4.25X this.
But there’s another reason to stay away from its stock.
2. It’s NEVER Been Profitable
In the most recent quarterly data Plug Power was unprofitable on an operating income basis, a net income basis, and on a free cash flow basis.
And it’s never been profitable on any of these metrics in any year of the last decade.
Over the last decade its produced…
- A total operating profit loss of $519 million.
- A total net income loss of $660 million.
- And a total free cash flow loss of $553 million.
How’s it stayed alive and operating in the last decade with these enormous losses?
That gets us to our next reason to avoid Plug Power…
3. Its Issuing An Enormous Number of Shares and Debt Just To Stay Alive
The only way this company has stayed alive to this point is through issuing new shares and debt.
In 2010 it had 13 million shares outstanding. But as of this writing it has 258 million.
This means its diluted shareholders by 18.9X or 1,890% in the last decade.
Think of this like a pizza.
When Plug Power issues more shares, the same size of pizza stays… But more people are around to eat it so the piece of pizza you have gets smaller and smaller the more it dilutes shares.
If a company keeps doing this over long periods like Plug Power has, the same size of the pizza remains but eventually you’ll get to eat little to no pizza.
This is bad enough by itself…
But Plug Power’s also combined this with a massive increase in its amount of long-term debt over the last decade too.
We talked about this a little above… But I want to further illustrate this with the screenshot.
Pay special attention to the 2 rows by the red line… See how much long term and “other” long term liabilities have increased as the decade went on?
Then look at the next line in the picture below other long-term liabilities to see how much this increased its total liabilities as a percentage of the balance sheet.
This continued issuance of shares and debt just to continue operating is unsustainable… But that hasn’t stopped shareholders from buying its shares this year.
And this gets us to our 4th and final reason to avoid Plug Power.
4. Massive Overvaluation And Speculation
Plug Power is a creator and innovator in hydrogen and fuel cell technology. And because its in this arena people are speculating in its shares like crazy this year.
From January 2nd, 2020 to today on July 23rd, 2020 as of this writing its shares rose from $3.24 per share to $8.79 per share.
Or an increase of 171.6%.
With a company that’s not turned a profit in the last decade.
This large increase in price is due to people speculating in its shares… As one example of this speculation, Plug Power is one of the most popular stocks on the Robinhood trading app.
Because of this rampant speculation, its also now massively overvalued too.
But you can’t tell this from the normal valuations metrics I refer to in these articles: P/E, P/CF, and forward P/E.
Those can’t be measured due to the company not being profitable on net income and cash flow basis.
I can tell its overvalued because its shares have gone up by 171.6% in value while the company hasn’t earned a profit in a decade. And there hasn’t been any positive news other than “hopes” this year either.
This shows you that people are speculating massively in this stock.
Buying shares in Plug Power right now isn’t investing… It’s much closer to gambling.
For the 4 reasons mentioned above, I recommend you stay far away from Plug Power and the gambling that’s going on in its stock.
This thesis to avoid GM’s continued to play out after it released its most up to date quarterly earnings on November 9th, 2020. Sort of.
- Gross billings – a proxy for revenue – rose 106% in the year-to-year quarterly period to $125.6 million.
- And it installed a record 4,100 fuel cell systems in the quarter which is an increase of 130% in the year-to-year quarterly period.
These are all fantastic… So why am I saying sort of above?
Because its still unprofitable. It took on even more debt and sold more shares to continue this growth. And there’s still rampant speculation in its stock.
In the first 9 months of 2020 it produced an operating loss of $79.8 million.
It increased its share count 56.7% from 236.8 million shares in the 3rd quarter of 2019 to 371 million shares as of the 3rd quarter of 2020.
And it its finance obligations and short- and long-term debt rose 30.6% from a total of $537 million at the end of 2019 to $701.2 million as of the end of the 3rd quarter 2020.
Yes, you need to reinvest in your business as a start up to grow… But the way Plug Power’s doing things is unsustainable.
On top of this, its stock has continued to soar as well.
There are still massive problems at Plug Power… And there is still massive speculation in its stock.
These mean buying shares in it now is extremely risky… And for this reason, I recommend you continue avoiding its stock.
Plus, I’ve already found you some better potential stocks to invest in as well.
Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.