Plug Power (NASDAQ: PLUG) stock price path to penny status accelerated this week as risk of collapse intensified. The shares plunged by more than 10% in the regular session on Wednesday and by another 14% in extended hours. It has retreated to a record low of $2.30, meaning that it has shed over 96% of its value since 2021.
More dilution aheadOn Tuesday, I wrote a comprehensive report on Plug Power and warned that it was at an increased risk of more dilution as its cash burn accelerates. This is a view I have maintained in most of my articles, which you can find here and here.
The prediction came true on Wednesday when the company filed with the SEC an at-the-market (ATM) stock offering worth $1 billion. This is a huge sum for a company that has a market cap of over $1.8 billion. It comes a few months after the company raised more capital and issued a going concern filing.
Plug Power stock has received several downgrades in the past few months. For example, Susquehanna recently downgraded the company from positive to neutral citing its delays in green hydrogen generation. The report said:
“While we like the company’s end-to-end solutions for the hydrogen ecosystem, we move to the sidelines until there is more clarity on the financing front and more progress on the gross margin front.”
Similarly, analysts at Piper Sandler slashed their outlook from neutral to underweight citing its reliance on project finance. This move exposes it to changes in interest rates and credit spreads.
This situation has been worsened by the recent US inflation data, which have pushed the dollar index (DXY) and bond yields higher as investors position for higher-for-longer rates. Most analysts expect that the Fed will start cutting rates in June instead of March.
Watch here: https://www.youtube.com/embed/hhlLlVWfVuE?feature=oembedProject delays and government fundingPlug Power has other challenges in its business, which explains why its short interest stands at almost 30%. For one, the Biden administration has issued guidance on tax credits that could hit the company’s access to cheaper funds. The administration wants to give these funds to companies that meet stricter emissions target. In a statement, an industry group that includes Plug Power said:
“These proposed regulations and requirements will unnecessarily hold back our domestic industry, driving investment, manufacturing and technology leadership overseas.”
Meanwhile, the administration is being criticised of funding companies that have a questionable future. Some Republicans have focused on Jigar Shah, the director of an office that provides these federal funds. Jigar has a relationship with Plug Power.
Plug Power will need a lot of money this year as it works to complete its green hydrogen plants. The challenge is that it has constantly delayed its Georgia plant, which has spent more money than its initial estimates. Its Texas and New York plants have also faced these challenges.
Outlook for Plug Power stock price
Plug Power share price has continually become a bargain considering that it was trading at over $75 a few years ago. However, the reality is that the company faces major challenges in 2024, meaning that this retreat could make it a value trap.
For example, hydrogen prices are still high while interest rates are expected to remain higher for longer. Its poor track record of project completion means that it will likely delay them further this year. Most importantly, I expect more dilutions this year.
However, there is a big risk of shorting Plug Power stock because of its high short interest. As we have seen with Cassava Sciences, short squeezes are still possible in this environment. This makes it risky to short the stock, especially now that it has formed a falling wedge pattern.
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