NEW YORK (TheStreet) -- In the competition to power the future, hydrogen fuel cells are a serious (if thus far minor) contender, whether to power automobiles or as small to medium-scale local electricity generators. And even though they have had limited success at gaining traction in the alternative energy marketplace, the possibilities for them are vast.
All of that might make Plug Power (PLUG) - Get Report, a manufacturer of fuel cell systems, appear a tempting company to consider, given that its shares are down more than 66% from their 52-week high. Take a look at the chart.
Plug Power stock was trading at $2.77 around 1 p.m Monday, down about 3%. The shares have lost around 8% in 2015, trailing both the Dow Jones Industrial Average (DJI) and the S&P 500 (SPX) , which have traded flat. The chart above shows the punishment investors have suffered for placing their faith in this company.
As cheap as the stock may appear now, trading near its 52-week low, new investors should remember that Plug Plower hasn't shown that it can make any money. And this is after years of reinvestments back into the business. Ahead of the company's fourth-quarter results Tuesday, investors are looking for signs that Plug Power can emerge as an alternative energy technology leader. They should prepare for disappointment.
Founded in 1997, the company, based in Latham, N.Y., sells fuel cell products -- both the type that replace lead-acid batteries in vehicles and industrial trucks, including forklifts, and the fuel cell/battery hybrids used in electric vehicles for the consumer market.
According to the company, "Using fuel cells instead of lead-acid batteries as the power source for electric lift truck fleets offers substantial benefits to the end user." But Plug Power also admits the difficulties it has experienced in selling businesses on those benefits: "[D]espite significant payoffs in terms of financial gains and performance, many retail, grocery, institutional food distribution and manufacturing companies have yet to embrace the hydrogen fuel cell solution for their material handling needs." Therein lies the challenge for the company, for investors.
Plug Power's struggles to sell its bread-and-butter GenDrive fuel cell products have weighed heavily on the stock, which is down more than 54% in the past five years.
For instance, as of the third quarter of 2014, while the company did ship a higher number of GenDrive units, its backlog (or committed purchases) stood at 2,534 units, valued at $35.7 million. While that number seems high, it's also on the decline. As of the second quarter, the backlog total was 2,659 unit orders valued at $36.6 million. And as of the first quarter of 2014, the backlog total was 3,063. Overall, that's a decline of 17% in committed purchases over just nine months.
Until the company can show it has figured out how to attract more new business, the stock can't be viewed as investment worthy. Moreover, Plug Power, which continues to invest heavily in research and development, must also show it can make money.
In the third quarter of 2014, for instance, it posted an adjusted loss of $7.5 million. At the same time, not only did its R&D expenses double to $1.6 million, the company's sales, general and administrative expenses surged almost 80% to $5 million.
Working in its favor, the company does have $156 million in cash on its balance sheet, against only $3 million in debt, which puts it at a healthy net cash position. But that cushion won't last long with the company operating with a negative cash flow of $40 million. Based on its weak order growth and lack of profits, investors would be well advised to stay away from this stock.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.