I don’t always understand trends, but I do recognize them. And for whatever reason, Plug Power (NASDAQ:PLUG) attracts a lot of eyeballs. Now, part of it is due to the company’s strong performance in the markets. At time of writing, the PLUG stock price is trading hands at $2.30, representing an over 85% year-to-date haul. That is serious power!
Another element likely driving positive sentiment is the company’s longer-term potential. Back in the craziness of the 2000 tech bubble, Plug Power stock reached well into four-digit territory. When you compare where shares once were to where they are now, you can’t help but wonder: a return to those heights is the stuff of cryptocurrency dreams.
Finally, you have the technological fundamentals underlining PLUG stock. As most of you likely know, Plug Power specializes in hydrogen fuel cell systems. Scientifically, it’s an exciting arena, potentially offering another pathway to total energy independence. That right there appeals to a broad segment of the population, from traditionalists to trendy millennials.
Moreover, these same fundamentals attracted buyers several years ago to companies like Tesla (NASDAQ:TSLA). Today, speculators are piling into similar electric vehicle and alternative-energy companies like NIO (NYSE:NIO). The allure of untold upside gains justified by next-generation technologies keeps investors salivating.
But are these factors good enough to consistently bring home shareholder returns in Plug Power stock? I have my doubts, which focus on one concept: you’ve got to understand the science of alternative energy.
When you do, you’ll see that whatever drives the PLUG stock price is mostly human psychology in action. If it traded on the actual science, PLUG would soon be unplugged.
PLUG Stock Has the Narrative but Not the Substance
You don’t have to be a scientist to understand that limitations govern life. For instance, if you’re running late to the office, you could literally do that: run. But if you do, you’ll expend energy. And the longer you run, the rate at which you burn energy will accelerate.
In economic and financial terms, we call this the law of diminishing returns. Further, there’s an adage that states you can’t have your cake and eat it too. And these principles stymie the longer-term narrative of the PLUG stock price.
Let’s consider the broader marketing message behind PLUG. With their alternative-energy sources, society can achieve multiple goals at once. These include cleaner emissions and eventually no dependency on volatile Middle Eastern politics. Theoretically, alternative energies keep consumer costs low, protecting us from price gouging at the pump.
Naturally, the message resonated with risk-takers, boosting the market value of Plug Power stock. Yet the science is not clear about the benefits of hydrogen fuel cells. According to a litany of counterarguments against hydrogen energy by CleanTechnica.com contributor Zachary Shahan, based on a post on this blog, this energy subsegment could be pure hype.
While some of the points have been disputed, Shahan reiterates some of the post’s detailed criticisms, such as that fuel cells wear out more quickly than lithium-ion batteries, and are difficult to regenerate. Furthermore, he makes the claim that hydrogen as a fuel is very difficult to make. I pulled up an article from Energy.gov which confirms Shahan’s concerns. Hydrogen also has significant infrastructure problems.
While I won’t dissuade anyone from taking potshots at Plug Power stock, you’ve got to look at the real fundamentals. I don’t think they speak kindly about the long haul.
Instinctively, you know what Shahan and other critics say is true. If you enhance one attribute, you necessarily sacrifice others. PLUG looks like that tardy worker who claims he can run for hours without breaking a sweat.
Plug Power Stock Masquerades as a Legitimate Investment
Here’s the thing that confounds the picture regarding PLUG stock: the underlying technologies actually work. Many high-profile names, including Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and General Electric (NYSE:GE), have signed on with various deals and partnerships.
But that doesn’t mean the technology is economically viable. Tesla CEO Elon Musk called hydrogen-based cars “mind-bogglingly stupid.” You’ll recall that Musk himself doesn’t always make smart decisions. Hydrogen-based cars are currently very expensive, and so are the fueling stations. But that doesn’t mean the technology has topped out. And of course, hydrogen-based cars would be a real threat to Tesla if they became affordable to the average driver.
However, I’m going to go a step further: pure EVs aren’t the answer, either. For drivers to have clean emissions and attractive, sporty rides, they must sacrifice something. Often, this means a higher ticket price, or inconveniences such as long charging times. While some folks can afford these costs, most probably can’t.
To summarize, PLUG stock represents a viable technology in that it works. However, Plug Power is not a viable business because hydrogen currently doesn’t work efficiently.
Until we change that — and it will be a while before it happens — I wouldn’t risk excessive funds on Plug Power stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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