Plug Power Inc. is a company that has continued to overpromise and underdeliver.$Plug Power(PLUG)$
We highlighted in our previous update that another markdown from its already downgraded FY22 outlook demonstrated significant execution challenges.
Yet, just one month later, the company failed to meet its already downgraded projections again.
Accordingly, Plug Power posted revenue growth of 36% YoY in FQ4, well below its downgraded projections of 61% growth in January.
Such a miss is unacceptable, demonstrating that it couldn't even meet the guidance that it penciled in just slightly more than a month ago.
Therefore, it's clear that the Andy Marsh-led company has lost credibility with investors, even as it remains confident of its long-term outlook.
Investors are right to question the visibility of its long-term projections, given the disastrous performance in 2022. Hence, we believe investors are right to justify that it could be the "same old story for 2023."
Marsh acknowledged that Plug Power "did not meet expectations," as he highlighted:
We attribute [our underperformance] primarily to 3 factors: obstacles well encountered while introducing new products, delays in constructing our hydrogen plant and macroeconomic conditions that affected the cost of natural gas, resulting in a significant increase in the cost of our hydrogen.(Plug Power FQ4'22 earnings call.)
In short, Plug Power Inc. execution is found wanting again. Worse still, management reiterated its $1.4B revenue growth outlook for 2023, indicating a YoY growth of nearly 100%, with gross margin guidance of 10%.
We thought Marsh & team would consider cutting its FY23 outlook to rein in a less aggressive ramp cadence that has proved highly challenging. The company highlighted it expects to benefit from a 15% reduction in hydrogen prices by its suppliers, given the massive collapse in natural gas prices (NG1:COM).
However, its inability to execute several moving parts in its core material handling business (55% of FY23 revenue outlook), electrolyzer sales (30% of FY23 revenue outlook), and other segments, including fuel cells and stationary products, has hampered Plug Power Inc.'s credibility.
While the secular tailwinds driving hydrogen are robust, it hasn't been one of the fundamental driving forces in renewable energy investments in 2022. Bloomberg reported that "the two smallest sectors for investment are carbon capture and hydrogen." However, it also highlighted that "both grew significantly in relative terms."
As such, the potential for green hydrogen seems intact if Plug Power could capture the tailwinds through its execution. The EU plans to phase in trucks on "batteries or hydrogen fuel cells ubiquitous within a few years." As such, the application of hydrogen-powered trucks could expand the total addressable market ("TAM") as the world continues its electrification transformation.
The drivers for green hydrogen use cases in the EU could also improve the economics for Plug Power, as the EU "aims to incorporate 20 million metric tons of clean hydrogen into the continent's energy mix by 2030."
Also, Plug Power highlighted it is working on leveraging opportunities in electric vehicle ("EV") charging by selling its stationary products to support the grid as the electrification journey picks up the pace.
Moreover, PJM Interconnection, one of the largest grid operators in the U.S., highlighted in a recent report that it sees an increased "risk of shortages and blackouts in the US electric grid as the force-fed energy transition to renewable fuels destabilizes the grid."
Hence, the threat to grid security is a significant tailwind that Plug Power could capitalize on. The company expects a "significant demand pull for its green hydrogen in stationary applications," further lifting its ability to ramp revenue and profitability toward its long-term targets.
All these tailwinds driving the potential for green hydrogen are enticing and likely one of the critical reasons why investors in Plug Power Inc. are still holding the bag, despite the drawdown in 2022.
The question is whether the bag is still worth holding in 2023?
PLUG has collapsed more than 80% from its early 2021 highs, with the bears in complete control.
This downtrend bias in PLUG seems to suggest that bearish investors have likely reloaded at its recent February highs, expecting the company to underperform again.
They have gotten it spot on, and Plug Power's torrid execution needs a massive wake-up call.
Plug Power Inc. investors still holding the bag must be prepared for a further decline that looks increasingly likely after its momentum was firmly rejected at its 200-week moving average or MA (purple line).
A re-test of its late December lows should provide more clarity, but we will not encourage Plug Power Inc. investors to play the mean-reversion trade here.
Stay away from Plug Power Inc. for now.
Source: Seeking Alpha
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