Consistent Failures Make Plug Power A Strong Sell
Mar. 20, 2015 9:54 AM ET | 49 comments | About: Plug Power, Inc. (PLUG)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Plug Power shared terrible Q4 results.
The company has a history of failing to live up to its promises.
Plug Power's negative gross margin and cash flow, increasing expenses, and reducing backlog are bad signs.
The company has failed to sustain profitability and is a sell.
Plug Power (NASDAQ:PLUG) has a long history of disappointing investors. The company has consistently failed to generate profits and has destroyed shareholder value by diluting stocks. As a result, the company's stock has lost over half its value since I recommended selling it back in July 2014. The company further frustrated investors by lowering its FY 2015 revenue guidance and I don't think this trend will come to an end in the near future as the company shared its woeful Q4 earnings this week.
The fuel cell maker reported wider-than-expected loss and revenue that failed to meet the consensus estimate. Plug Power posted a loss of $0.08 per share, which is twice as much as analysts were expecting, while revenue of $21.5 million was also lower than the consensus target of $26.3 million. In addition to the loss, the company's R&D and SG&A expenses also grew significantly. Despite a massive drop in valution, I still think Plug Power is a sell. Let's take a look at the reasons why.
History of underperforming may lead to further dilution
As evident from the chart above, Plug Power's gross margin has always been hideous. Although the company's gross margin has climbed in the last couple of years, it still stands at -12.5%. The company's management expects gross margin to reach 25% in 2015. However, given that Plug Power has massively failed to meet its lofty targets in the past, I don't think its gross margin will improve anytime soon. In 2009, Plug Power's CEO Andy Marsh, said that,
The company will achieve a gross margin percentage in the mid-teens.
Then in 2011, Marsh said:
Plug Power expects margins to top 20% in 2012, and reach 30% in 2013.
The company failed to deliver every time, and I don't think it will get anywhere close to its gross margin target of 25% in 2015.
Although Plug Power has a healthy balance sheet, there's a looming risk of further dilution. The company ended the quarter with $146 million in cash (down sequentially from $156 million), against a debt of only $3 million. However, Plug Power's negative gross margin, increasing expenses, and negative cash flow signify that it may run out of cash in the near future. The company has failed to sustain profitability and has a history of diluting shares, and given the rate at which it is burning cash, it may further dilute stocks in the future.