Plug Power (NASDAQ: PLUG) stock price remained in a consolidation phase this week as investors assessed the next actions by the cash-strapped company. The stock was trading at $4.35 on Thursday, where it has been in the past few weeks. It has plunged by over 64% in the past 12 months, giving it a market cap of over $2.6 billion.
Cash is running outPlug Power has been a disappointing investment for all involved in the past few years. After peaking at $75.56 in January 2021, it has crashed to below $5. This decline happened because of both internal and external factors.
Externally, the clean energy industry has been going through major headwinds in the high-interest rate environment. As a result, companies like SunRun, Sunnova, and Li Cycle have also retreated. Firms like Siemens Energy and Orsted have also pulled back.
Internally, Plug Power has been quite horrible in its execution. The company’s plant in Georgia has faced an extended delay while its construction costs have jumped sharply.
Worse, as I have written before, the company is a cash incinerator, that is losing hundreds of millions of dollars every quarter. In its most recent 10Q, the company said that its net losses stood at over $726 million in the 9 months to September 30th.
As a result, it warned that its available liquidity will not be enough to last the next 12 months. Analysts believe that barring any new cash raise, Plug Power will likely run out of cash this quarter.
In light with this, the management has identified three ways to fund its operations: corporate debt, project financing and plant equity partnerships, and loan guarantees by the Department of Energy.
All these ways have key challenges and will be difficult to execute. Because of its past performance, and because of its asset quality, potential lenders will likely request as much as 15%. Besides, the likely value of its inventory could be slashed by as much as 50%.
Project financing is also not easy now that the company has delayed its Georgia and other upcoming plants for a while. Also, its green hydrogen is expected to come online in 2025, making hard to follow this route.
There is a likelihood that the company will ask Biden’s DoE for loans guarantees. The challenge is that Republicans are now focusing on the department’s Green BanK. According to Bloomberg, they are now assessing how the department is dishing out loans for these projects.
Therefore, the most likely approach for Plug Power will involve equity, which it has enough since the company has a market cap of over $2.6 billion. In this case, the company will likely follow Nikola’s approach and raise an ATM agreement. It could also issue convertible debt. These two options will lead to a dilution of existing shareholders.
What next for Plug Power stock?
It is hard to recommend Plug Power stock at these prices because of the difficult situation it finds itself in. At the same time, the company has a short interest of almost 30%, making it a bit expensive to short for now.
This short interest exposes it to the risk of a short squeeze especially when the Fed points to rate cuts. This view can still happen now that the stock has formed a falling wedge pattern on the weekly chart. Therefore, I’d stay in the sidelines and wait for what comes in the coming months.
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