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Anyone who has held Plug Power (NASDAQ:PLUG) stock since early 2021 has, unfortunately, suffered staggering losses. If you’re underwater on your investment, you might search for positive catalysts in Plug Power’s recently issued quarterly report. Yet, the overall fiscal picture still looks grim for Plug Power.
Maybe you’re bullish on the hydrogen economy, and that’s understandable. After all, clean energy will be important in the coming years. So, why not just wager your money on Plug Power and hope for the best?
This might not be an ideal strategy, as Plug Power’s bottom-line results have been less than ideal. Even if the hydrogen market expands over the coming months, Plug Power’s financial position could prevent the company from delivering sufficient value to its shareholders.
Plug Power Touts Revenue Growth
In Plug Power’s first-quarter 2023 shareholder letter, the company emphasized its year-over-year top-line growth. That’s understandable, as Plug Power’s 49% revenue improvement from 2022’s first quarter to Q1 2023 is definitely impressive.
Having generated $210.29 million in revenue during the quarter, Plug Power beat the analyst consensus estimate, but only by 2.5%. Still, I’m glad to give credit where it’s due. It’s perfectly fine for PLUG stock investors to celebrate the company’s sales acceleration.
There’s more to the story, though. Notably, Plug Power’s gross margin declined 8% year over year to -33%. Thus, just because Plug Power is reporting improvement in its sales doesn’t mean the company is converting those sales into strong profits.
Plug Power claims it’s positioned to “achieve significant revenue and continued margin expansion throughout the year.” Yet, it remains to be seen whether Plug Power’s margins can actually improve in 2023.
Plug Power’s Escalating Costs Could Be Problematic for PLUG Stock
As mentioned earlier, Plug Power’s revenue increased 49%, and that’s impressive. What about the cost of revenue, though? From the year-earlier quarter to Q1 2023, Plug Power’s cost of revenue jumped 58.77% ($176.153 million to $279.682 million).
This bothers me, as I didn’t see much discussion about how Plug Power intends to reduce its expenditures in the company’s quarterly press release and conference call. Going forward, Plug Power’s shareholders should insist that the company’s management establish a specific action plan to cut costs.
Significant financial outlays seem to be taking a toll on Plug Power’s bottom line. Analysts had called for Plug Power to report a first-quarter 2023 earnings loss of 26 cents per share. However, the company did worse than that, posting a loss of 35 cents per share. That’s highly disappointing, especially considering Plug Power’s huge revenue intake.
Get Ready for Sub-$5 PLUG Stock
Plug Power’s loyal shareholders can certainly celebrate the company’s top-line growth. However, this doesn’t mean that the company is on the right financial path.
In its shareholder letter, Plug Power claimed that it’s “focused on key initiatives to enable revenue growth and path to profitability.” Personally, I can see company’s revenue growth, but Plug Power’s path to profitability is unclear.
Therefore, I’m not optimistic about the near-term future of PLUG stock. I expect it to become a penny stock, which we can informally define as a stock that trades below $5. Ultimately, even if you have high hopes for the future of the hydrogen market, there’s no need to jump into a hasty investment in Plug Power.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.