Plug Power Inc (NASDAQ:PLUG) stock has surged more than 4000% over the past year from a low of $0.15 last April to over $11 in February and is currently trading around $7. The run, according to the experts, is driven by the hope that the company will utilize its technology to enter the automotive and aviation industries. However, such hopes have been there since the company was formed over a decade ago, says a report from Seeking Alpha by Omega Investor.
The author, furthermore, argues that even if the company expands to these industries, the R&D cost will be prohibitive, and the company will face the same profitability issues that it is facing currently.
Profitability issues with Plug Power
For fiscal years 2013, 2012 and 2011, Plug Power Inc (NASDAQ:PLUG) posted net losses attributable to common shareholders of $62.8 million, $31.9 million and $27.5 million respectively. Additionally, it has incurred a deficit of $849.4 million as of December 31, 2013. For fiscal 2014, the company is expecting net cash burn to be around $10-$15 million.
Plug Power Inc (NASDAQ:PLUG) generated a small revenue from the services compared to the actual product sold, and at the same time the costs relating to these services are rising, according to the author. Though the increased orders may look great at this point of time, moving forward all the equipment will need maintenance, and the cost would affect the future earnings.
For Plug Power Inc (NASDAQ:PLUG) increase in product cost is not extraordinary with increase in the products sold due to direct overhead costs, but the fact that the cost is more than the profits is a cause of concern. According to some, the cost may come down with the recent purchase of ReliOn, but the effect of this purchase will not be evident before 2015 due to a supply agreement with Ballard Power system.
Not enough cash
Plug Power Inc (NASDAQ:PLUG) has completed two additional public offerings. Also, Plug Power Inc (NASDAQ:PLUG) got $18.2 million from the common stock warrants, which were issued previously. At present, the company has around $73 million available to spend along with the cash and equivalents of $5 million as of December 31, 2013. This implies that the company will use around one third of their cash in 2014. “This does not bode well for long-term survival unless additional capital is raised,” says the author.
According to the author, Plug Power stock “should be avoided at least until management can prove that this company can become profitable.”
In the pre-market trading on Tuesday, Plug Power stock was down 1.14% at $6.93.