Investors in Plug Power are feeling the impact of the recent “going concern” warning issued in the company’s third-quarter financial report. On Friday, shares plummeted by 41%, hitting a record low of $3.53 per share – the lowest it has been since 2020. Early Monday, the stock (ticker: PLUG) experienced an additional drop of 5.7%, down to $3.33. In contrast, S&P 500 and Nasdaq Composite futures slipped by approximately 0.4%.
The inclusion of a going concern warning carries significant weight. According to accounting expert Robert Willens, such a warning is warranted when there is reasonable doubt that a company can continue conducting its regular business operations in the foreseeable future without undergoing asset liquidation or obligation restructuring.
To dispel this doubt, Plug Power will likely require additional funding to support its operations. Chris Dendrinos, an analyst from RBC Capital Markets, estimates that the company may need at least $750 million or more to enhance its liquidity within the next year. Consequently, Dendrinos downgraded his rating on Plug Power’s stock from Buy to Hold and reduced his price target from $12 to $5.
During the third quarter, Plug Power utilized approximately $400 million in cash. Analysts predict that the company will consume around $900 million over the following four quarters, as reported by FactSet. Although Plug Power ended the third quarter with roughly $1.6 billion in cash and investments, it is worth noting that approximately $1 billion of that amount is categorized as “restricted.”
Cash Flow and Lease Deals
A significant portion of the company’s cash is tied to prior lease agreements, which is gradually released over the duration of these leases. At the moment, the company has not provided any comment regarding its restricted cash.
Analyst Reactions
Following this announcement, several downgrades and price target reductions have occurred. Amit Dayal, an analyst at H.C. Wainwright, lowered the price target from $27 to $18. However, he still rates the shares as a Buy.
Before the report on Thursday, approximately 65% of analysts had rated the shares as a Buy. Currently, 45% of analysts covering the stock maintain a Buy rating. This percentage is slightly lower than the average Buy-rating ratio for stocks in the S&P 500, which stands at approximately 55%.
The average price target set by analysts is approximately $11 per share. Prior to Thursday’s report, the target was nearly $15 per share.
Plug’s Expansion into Green Hydrogen Production
Plug is actively working towards becoming a fully integrated producer of green hydrogen. This type of hydrogen is produced using renewable energy sources. The company is involved in every stage of the process, from manufacturing the necessary equipment to distributing and utilizing the gas itself.
Green hydrogen is an environmentally friendly option as it does not emit carbon dioxide, the primary contributor to climate change, during use. It is expected to witness wider adoption in the coming years. However, there are still obstacles to overcome, including the higher cost of hydrogen compared to traditional fuels like diesel.
Cash Flow Management Challenges
Ensuring positive cash flow until the hydrogen business reaches a scale where it becomes profitable is a challenging task. Plug investors are currently grappling with this reality.
By Al Root