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shares of plug power (NASDAQ:PLUG) It soared this week, rising 34.3% at its all-time high, according to data provided by S&P Global Market Intelligence. Investors in hydrogen fuel cell makers aren’t used to such strong gains. After all, Plug Power stock continues its free fall, and as of this writing is still down 79% in just one year. This week’s rebound is also the biggest rally in three years, leaving investors hoping this is the bottom for hydrogen stocks.
Plug Power is solving the biggest problem: cash.
The market was understandably nervous about Plug Power stock ahead of the company’s annual results update, which just a few months ago had warned of deteriorating cash flow and even issued a “going concern” warning. So when Plug Power announced this week that it was close to securing significant government funding, it was no surprise that it was a big boost for its struggling stock price.
Plug Power said it is negotiating a $1.6 billion loan with the Department of Energy (DOE) and could close by the third quarter of this year. The company had only $110 million in cash and cash equivalents as of September 30, 2023, and stated that its existing cash and marketable securities available for sale would not be sufficient to fund its operations for the next 12 years. For this, this is a huge amount of money. A few months.
If Plug Power can secure a Department of Energy loan, it could develop up to six hydrogen production facilities. Plug Power currently has three hydrogen projects under construction and four plants or sites under development in Texas, New York and Louisiana.
Plug Power also began production this week at a green hydrogen plant in Georgia. The plant is the largest currently in operation, with a production capacity of 15 tons of liquid electrolyzed hydrogen per day. Once the plant is fully operational, it is expected to significantly increase Plug Power’s fuel margins and reduce losses. Negative fuel margins were one of the main reasons Plug Power reported negative gross margins of 69% in the third quarter.
Is Plug Power stock a buy at current prices?
Plug Power stock soared on news of the potential financing, but it’s important to remember that the company has not yet secured financing and until then, it continues to need cash to run its day-to-day operations. It’s still a lot of work. And even if Plug Power secures funding, it will need to cut costs and increase profit margins to convince investors that it can one day become a profitable company.
Simply put, while it’s true that DOE funding will bring Plug Power back from the brink of bankruptcy, it doesn’t change the long-term story for the stock. I can’t say it’s attractive so far.
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Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
The original article on why Plug Power stock soared 34% this week was published by The Motley Fool
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