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Rock star Growth Puts Plug Power (NASDAQ:PLUG) In A
Position To Use Debt
Feb 26, 2023
David Iben put it well when he said, 'Volatility is not a risk we care
about. What we care about is avoiding the permanent loss of capital.' So
it might be obvious that you need to consider debt, when you think about
how risky any given stock is, because too much debt can sink a company. We
can see that Plug
Power Inc. (NASDAQ:PLUG)
does use debt in its business. But should shareholders be worried about
its use of debt?
When Is Debt A Problem?
Debt is a tool to help
businesses grow, but if a business is incapable of paying off its lenders,
then it exists at their mercy. In the
worst case scenario, a company can go bankrupt if it cannot pay its
creditors. However, a more usual (but still expensive) situation is where
a company must dilute shareholders at a cheap share price simply to get
debt under control. By replacing dilution, though, debt can be an
extremely good tool for businesses that need capital to invest in growth
at high rates of return. When we think about a company's use of debt, we
first look at cash and debt together.
See our latest analysis for Plug Power
What Is Plug Power's Net Debt?
The chart below, which you
can click on for greater detail, shows that Plug Power had US$547.2m in
debt in September 2022; about the same as the year before. But on the
other hand it also has US$2.70b in cash, leading to a US$2.15b net cash
position.
NasdaqCM:PLUG Debt to Equity History February 26th 2023
How Strong Is Plug Power's Balance Sheet?
According to the last
reported balance sheet, Plug Power had liabilities of US$599.4m due within
12 months, and liabilities of US$1.04b due beyond 12 months. Offsetting
these obligations, it had cash of US$2.70b as well as receivables valued
at US$148.9m due within 12 months. So it actually has US$1.21b more liquid
assets than total liabilities.
This short term liquidity is a sign that Plug Power could probably pay off
its debt with ease, as its balance sheet is far from stretched. Simply
put, the fact that Plug Power has more cash than debt is arguably a good
indication that it can manage its debt safely. The balance sheet is
clearly the area to focus on when you are analysing debt. But ultimately
the future profitability of the business will decide if Plug Power can
strengthen its balance sheet over time. So if you want to see what the
professionals think, you might find this
free report on analyst profit forecasts to be interesting.
Over 12 months, Plug Power reported revenue of US$643m, which is a gain of
1,951%, although it did not report any earnings before interest and tax.
When it comes to revenue growth, that's like nailing the game winning
3-pointer!
So How Risky Is Plug Power?
We have no doubt that loss making companies are, in general, riskier than
profitable ones. And the fact is that over the last twelve months Plug
Power lost money at the earnings before interest and tax (EBIT) line. And
over the same period it saw negative free cash outflow of US$956m and
booked a US$693m accounting loss. Given it only has net cash of US$2.15b,
the company may need to raise more capital if it doesn't reach break-even
soon. The good news for shareholders is that Plug Power has dazzling
revenue growth, so there's a very good chance it can boost its free cash
flow in the years to come. High growth pre-profit companies may well be
risky, but they can also offer great rewards. For riskier companies like
Plug Power I always like to keep an eye on the long term profit and
revenue trends. Fortunately, you can click
to see our interactive graph of its profit, revenue, and operating
cashflow.
If you're interested in investing in businesses that can grow profits
without the burden of debt, then check out this free list
of growing businesses that have net cash on the balance sheet.
What are the risks and opportunities for Plug Power?
Have feedback on this article? Concerned about the content? Get
in touch with
us directly. Alternatively,
email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We
provide commentary based on historical data and analyst forecasts only
using an unbiased methodology and our articles are not intended to be
financial advice. It does not constitute a recommendation to buy
or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven
by fundamental data. Note that our analysis may not factor in the latest
price-sensitive company announcements or qualitative material. Simply Wall
St has no position in any stocks mentioned.
Green Play Ammonia™, Yielder® NFuel Energy.
Spokane, Washington. 99212
www.exactrix.com
509 995 1879 cell, Pacific.
Nathan1@greenplayammonia.com
exactrix@exactrix.com
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