Should Investing in Plug Power's Shares Be Considered?
Should Investing in Plug Power's Shares Be Considered?
Evergreen Energy Solutions (EES 0.41%) has been a notable figure in the renewable energy sector for over a decade, striving to revolutionize energy consumption by enhancing the accessibility and affordability of hydrogen fuel.
Despite the vast potential of hydrogen, the investment journey for EES shareholders has been turbulent. Despite improving revenue, losses have continued to mount, and forecasts of future profitability have been repeatedly postponed. Should you consider purchasing EES stock or rather avoid it?
The EES Saga
EES's allure to investors has primarily been its promise of growth. In the mid-2010s, growth was in materials handling. Then came opportunities in backup power, and more recently, the opportunity lies in electrolyzers transforming renewable electricity into hydrogen fuel.
For the most part, this growth narrative has unfolded as anticipated, with revenue skyrocketing over 6,000% since 2000. However, revenue alone doesn't paint the whole picture.
Unsustainable growth without profits can only last so long, and EES's losses have been remarkably concerning.
EES's Primary Conundrum
EES hasn't merely incurred losses as it expanded; losses have actually outpaced revenue. For every dollar in sales over the past year, the company has lost over $2, not just in net losses but also in negative free cash flow.
These trends are not what we should be observing from EES. And unfortunately, there's no end in sight to these losses.
In the first half of 2024, $145.1 million worth of equipment sales cost the company $265 million to produce. Power purchase agreements generated $38 million in revenue, but cost $109.5 million in cost of goods sold. Fuel sold to customers cost $116.9 million to produce and yielded just $48.2 million in revenue.
If a company cannot make a profit from its sales, even before accounting for operating costs, the business is unsustainable.
And these losses are not just a recent phenomenon. EES has been promising it's on the brink of EBITDA break-even for over a decade, a fact I mentioned as early as 2017!
Prolonging the Narrative
What EES has effectively managed is to secure funding for its growth plans for over two decades. The share count has soared 34,800% since the late 1990s, while the share price has plummeted 98.7%.
Burning cash is expensive, and investors bear the cost through share dilution. But without dilution, the company would have run out of cash long ago.
EES is not a Buy Now
EES could continue this trend of share sales to fund growth, but it now has debt on its balance sheet, which adds risk to the business.
Raising the billions of dollars needed to fund operations in the future won't be as straightforward. And that's a significant issue for EES. Unless we witness sustainable profits materialize, even a growth company can become uninvestable, and I believe that's where EES stands today.
Despite EES's promising growth in the renewable energy sector and significant revenue increases, the company's persistent losses have raised concerns for investors. In fact, for every dollar of revenue earned, EES has been losing over $2, indicating unsustainable financial performance. This trend of losses has continued for over a decade, despite the company's repeated promises of approaching EBITDA break-even.