Plug Power (NASDAQ:PLUG) is at the forefront of the hydrogen-power movement of the 2020s. However, it’s not prudent to over-invest in Plug Power. Position sizing is crucial with Plug Power stock, as there are risks involved and share-price volatility should be expected.
Don’t get me wrong. I’m rooting for Plug Power to succeed and eventually post a quarterly profit, though that goal remains elusive.
Still, I like the way Plug Power continually innovates and advances fuel-cell technology. Someday, the company’s financials could be rock-solid. Until that time comes, however, there’s no need to go all in on Plug Power stock.
A Rough Quarter and a Questionable Strategy
Plug Power released its first-quarter 2024 results recently, and suffice it to say, they’re not ideal. Plug Power may be an industry innovator, but the company isn’t a model of financial perfection.
Plug Power’s net revenue decreased 42.8% year over year, from $210.286 million in 2023’s first quarter to $120.264 million in Q1 of 2024. Meanwhile, the company’s cost of revenue was nearly unchanged during that time frame.
Turning to the bottom line, Plug Power’s net earnings loss widened considerably, from $206.561 million in the year-earlier quarter to $295.776 million in 2024’s first quarter. Clearly, the company’s financial results are moving in the wrong direction.
Also, Plug Power is implementing a strategy that doesn’t guarantee positive results. In particular, the company “has worked with customers to put in place price increases” across Plug Power’s “entire product portfolio with a specific focus on hydrogen pricing.”
The company is taking an enormous risk with this strategy. Some of Plug Power’s customers might pay more. However, price increases certainly won’t be popular with some current and prospective customers.
Only time will tell whether Plug Power can parlay higher prices into better top-line and bottom-line results.
Plug Power Gets a Government Loan Commitment
The recent news item that’s drawing a lot of attention to Plug Power is the government’s large-scale loan commitment. It’s exciting news, no doubt, but it’s not a sufficient reason to over-invest in Plug Power stock.
Here’s what you need to know. Plug Power “received a conditional commitment” for a loan guarantee valued at up to $1.66 billion from the Department of Energy’s Loan Programs Office.
This funding is intended to “finance the development, construction, and ownership of up to six green hydrogen production facilities.”
Barron’s seemed to suggest that his news item prompted a single-day 24% rally in Plug Power stock.
However, there was a meme-stock short squeeze happening at that time. I suspect that the meme-stock revival was just as much of a contributing factor, if not more so, than the government-loan news.
Investors should be careful to avoid misconstruing the news. This isn’t a government grant or subsidy to Plug Power; it’s a loan.
It’s not free money for Plug Power. Also, it’s up to $1.66 billion (so, maybe less than that), and it’s a conditional loan guarantee, which almost sounds like a contradiction in terms.
Plug Power Stock: Tread Carefully, Please
To be honest, Plug Power’s financial facts aren’t particularly encouraging. Moreover, it’s questionable whether higher product prices will benefit Plug Power in the long run.
Plus, investors should get overly excited about Plug Power’s government-loan news. Therefore, while it’s fine to own Plug Power stock, please keep your position size very small and be ready to bail if necessary.
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.