What a time it’s been for Plug Power. In the past six months alone, the company’s stock price has increased by a massive 244%, reaching $2.89 per share. This run-up might have investors contemplating their next move.

Is now the time to buy Plug Power, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Do We Think Plug Power Will Underperform?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons there are better opportunities than PLUG and a stock we'd rather own.

1. Revenue Tumbling Downwards

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Plug Power’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 12.6% over the last two years. Plug Power isn’t alone in its struggles as the Renewable Energy industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

2. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Plug Power’s margin dropped meaningfully over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because it’s already burning cash. If the longer-term trend returns, it could signal it’s in the middle of a big investment cycle. Plug Power’s free cash flow margin for the trailing 12 months was negative 115%.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Plug Power burned through $775.8 million of cash over the last year, and its $574.2 million of debt exceeds the $140.7 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Plug Power’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Plug Power until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Plug Power doesn’t pass our quality test. After the recent rally, the stock trades at $2.89 per share (or a forward price-to-sales ratio of 4.1×). The market typically values companies like Plug Power based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at a top digital advertising platform riding the creator economy.

Stocks We Like More Than Plug Power

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