The decrease in Plug Power's stock value by an unfortunate 7% recently.
Plug Power's stock experiences a rollercoaster ride today, losing 7.1% by 11:20 a.m. ET after the U.S. Department of Energy approves a $1.7 billion loan to boost hydrogen fuel production. However, the confusion arises because investors anticipated the news would drive prices up, not down.
The Department of Energy's approval, announced after market close on Thursday, is meant to support Plug's expansion of its domestic manufacturing and hydrogen production capabilities. With this funding, Plug aims to develop and operate up to six hydrogen production plants across the U.S. These initiatives will significantly increase the company's output, estimated to reach approximately 135 tons per day.
Plug Power's Lending Opportunity
The U.S. government's loan guarantee provides a substantial injection of capital for Plug Power. Although it's not a grant, this low-interest debt will undoubtedly assist the company in driving its expansion plans.
However, investors should bear in mind that Plug Power already holds nearly $930 million in debt and has less than $94 million in available cash. This figure indicates a steep annual cash burn rate, amounting to over $1.3 billion, alongside annual losses of $1.4 billion. These daunting figures cast doubt on Plug Power's ability to repay the debt in the future.
Roaring with Uncertainty
Despite these challenges, Plug Power has established itself as a prominent player in the hydrogen fuel cell market. With a 28-year history of losses, investors should consider adopting a cautious approach to this stock. On balance, the current financial situation leads me to advocate for selling Plug Power shares, emphasizing the importance of managing risk in investment decisions.
The Department of Energy's loan guarantee is expected to aid Plug Power in its financial expansion by investing in hydrogen production plants, potentially boosting its output to 135 tons per day. However, investors should be mindful of Plug Power's existing debt of nearly $930 million and annual cash burn rate, which could pose challenges in repaying the new loan in the future.
