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The adage “buy the rumor, sell the news” appears to be playing out with Plug Power (PLUG -7.25%) stocks today.
After a surge earlier in the week fueled by speculation regarding a $1.7 billion loan approval from the U.S. Department of Energy aimed at boosting hydrogen fuel production, the company’s shares dropped by 7.1% by 11:20 a.m. ET on Friday. The sudden decline raises questions: why the downturn?
The reason for the dip is linked to the fact that the U.S. Department of Energy has confirmed the approval of the loan.
Positive Developments for Plug Power
This significant announcement was made shortly after the markets closed yesterday. The Department of Energy has finalized a $1.7 billion loan guarantee intended to support Plug Power’s initiatives to enhance its “domestic manufacturing and hydrogen production capabilities.”
The company plans to utilize this funding for up to six projects aimed at producing and liquefying zero- or low-carbon hydrogen across the United States, starting with a green hydrogen facility in Graham, Texas. Plug Power already operates similar facilities in Woodbine, Georgia; Charleston, Tennessee; and St. Gabriel, Louisiana, which collectively generate around 45 tons of hydrogen fuel daily.
With the support from the new loan for additional plant construction, Plug Power’s hydrogen production is projected to increase significantly, potentially reaching around 135 tons per day.
Evaluating Plug Power’s Stock Potential
However, the question remains: is Plug Power stock an attractive purchase? While securing loans can be beneficial — particularly when backed by government assurance — it’s vital to recognize that loans represent debt. Ultimately, Plug is obligated to repay this debt.
Compounding this complexity, Plug Power is currently facing nearly $930 million in existing debt, with cash reserves of less than $94 million. The company is also experiencing a cash burn of over $1.3 billion annually and has reported annual losses of approximately $1.4 billion. Despite the optimistic news regarding the loan, Plug Power has a lengthy track record of financial struggles, with 28 years marked by consistent losses, often exacerbated year over year.
Given these factors, it may be prudent to consider Plug Power stock as more of a sell than a buy.
Source
www.fool.com