Plug Power

Plug Power (NASDAQ:PLUG) is not a pretty stock. Even since its reverse 1:10 stock split in 2011, the Plug stock price is down. There was a flurry of activity in 2014 which peaked at around $8/share, but now Plug shares trade at around $2.20/share.

Source: Plug stock price chart by amigobulls.com

There is a good reason for this consistent and huge fall in the Plug stock price. Plug doesn’t make any money, it burns through it. For the two most recently-reported quarters it has only lost one-third of what it took in, $9 million on sales of $24 million in the second quarter, $10 million on sales of $31 million the third. Usually it does much, much worse with its losses far out sizing its revenues. For all of 2014, that “hot” year for the stock, Plug Power lost $88.5 million on sales of $64.2 million. That’s for the entire year.

Plug stock currently trades at a price-to-sales multiple of 4.6X, based on sales which are accompanied by even bigger losses.

Source: Plug Power Price-to-sales ratio chart by amigobulls.com

So why am I now suggesting you might want to buy Plug stock?

Is Hydricity The Answer To Plug's Woes?

The reason is Hydricity. It’s a concept developed at Purdue, combining two types of solar panels, photovoltaic or PV panels producing electricity and concentrated solar panels, or CSPs, producing heat, fuel cells, and steam turbines to not only produce power efficiently, but to do so 24 hours/day.

This has always been the problem for solar systems. What happens when the Sun goes down? In the past the answer has generally been, batteries. CSP systems like the one at Ivanpah in the Mojave Desert also produce power all night, by using the residual heat from the day’s power production.

In the system proposed by Purdue, the PV systems produce both hydrogen gas during the day, from the steam, which would be used by the fuel cells, at night, to keep the turbines generating power after the Sun goes down. The team claims the system produces hydrogen with an efficiency of 50% and electricity at an efficiency of 46%, more than double the efficiency of the best solar panels currently on the market. Best of all, they don’t need expensive batteries – the system is self-contained.

Right now it’s all theoretical. CSP systems like Ivanpah are very capital-intensive, and their economics are not proven. Adding fuel cells would allow the use of smaller, less-expensive CSP systems and removing the cost of back-up.

The question is whether Plug Power can hang on until this utility market develops. The company was recapitalized in 2014 – that’s why the stock ran up – but debt is gradually being re-introduced to the balance sheet. There was $9.65 million in debt on Plug's books at the end of the third quarter, and there will likely be more in the fourth quarter. This number was up from $2.39 million debt at the end of Q2. Plug closed the latest quarter with $85 million in cash sitting on its books. The company’s “burn rate” of cash is currently around $40 million/year, and it is slowly rebuilding its corporate sales as a back-up power system to companies like Nike (NYSE:NKE). Vetr, a crowd-sourced analysis system backed by venture capital, has begun pounding the table for Plug stock, with a target price of $3.32 for the stock implying a 52.2% upside.

If Hydricity turns out to be the answer for Plug's woes, the payoff for Plug investors could be large. It all adds up to speculation, but speculation of an interesting kind that might yet save the world, if you’re interested in playing. Don’t invest a dime in Plug Power if you can’t afford to lose, understand that the return may not come for some time, but if you want to play the field is open.