Better Buy: Plug Power vs. ChargePoint

Plug Power (NASDAQ: PLUG) and ChargePoint (NYSE: CHPT) are both green energy stocks that delivered ugly red losses for most of their investors.

Plug Power, which was once considered a promising play on the hydrogen fuel cell market when it went public in 1999, has dropped nearly 99% from its IPO price. ChargePoint, a leading builder of electric vehicle charging networks, has shed over 90% of its value since it went public by merging with a special purpose acquisition company (SPAC) in 2021.

Could either of these unloved stocks turn green again?

Plug Power's niche market isn't growing

Plug Power originally developed hydrogen-powered residential systems. But it currently costs more to produce hydrogen than to use existing fossil fuels, and it's more expensive to build new hydrogen charging infrastructure than to expand existing power grids.

Plug eventually abandoned that plan and pivoted toward a niche market of hydrogen-powered forklifts for warehouses and fulfillment centers. It gained Amazon and Walmart as its top customers by subsidizing their fuel cell sales with stock warrants -- or options to buy more of its own shares at a discount -- but those incentives exceeded the total amount customers paid it by 2020. That issue caused Plug Power's reported revenue to turn negative in 2020.

Data source: Plug Power.

Plug Power's revenue turned positive again in 2021 and rose over the following two years, but a lot of that growth was fueled by two acquisitions which expanded its cryogenic equipment business. That inorganic growth offset the weakness of its core hydrogen fuel cell business, but it caused its operating and net losses to widen at an alarming rate.

Plug Power only held $62 million in cash and equivalents at the end of the second quarter of 2024, but it secured a new $1.66 billion loan from the U.S. Department of Energy (DOE) in May to build up to six new green hydrogen energy production facilities across the U.S. That lifeline will keep Plug Power's business alive, but it will also roughly double its total liabilities to $3.45 billion and boost its debt-to-equity ratio to 1.2.

For the full year, analysts expect Plug Power's revenue to decline 5% to $843 million as it slightly narrows its net loss to $905 million. Its enterprise value of $2.5 billion might seem like a bargain at three times this year's sales, but it could continue trading at that discount unless the ice-cold hydrogen market warms up again.

ChargePoint faces an existential crisis

ChargePoint builds EV charging stations for homes, businesses that want to attract more drivers, and companies that operate fleets of EVs. It's already built more than a million charging points across North America and Europe.

But just like Plug Power, ChargePoint has been struggling with slowing sales growth and steep losses over the past few fiscal years (which ended in January of each calendar year). That deceleration was caused by the broader slowdown of the EV market, macro headwinds for its commercial customers, and intense competition from Tesla's (NASDAQ: TSLA) expanding network of Superchargers and smaller challengers like Blink Charging (NASDAQ: BLNK).

Data source: ChargePoint.

Tesla's Level 3 Superchargers are faster than ChargePoint's Level 2 chargers, and they're now compatible with a growing list of third-party EVs. That pressure could throttle ChargePoint's long-term growth and prevent it from ever breaking even.

For the full year, analysts expect ChargePoint's revenue to decline 12% to $448 million as it narrows its net loss to $259 million. However, that bottom-line improvement is being driven by its recent layoffs -- so it's actually shrinking its core business as it faces tougher competitive threats. It ended its latest quarter with just $243 million in cash and equivalents, and its high debt-to-equity ratio of 3.3 doesn't give it much room to raise fresh cash at reasonable rates. Its enterprise value of $702 million might seem cheap at less than 2 times this year's sales, but it might deserve that steep discount.

I wouldn't touch either of these beaten-down green energy stocks right now. But if I had to pick one over the other, I'd buy Plug Power for three reasons: It faces fewer direct competitors in its niche market; it's less leveraged; and it's still backed by Amazon, Walmart, and the U.S. government. ChargePoint established an early mover's advantage in the EV charging network market, but it could be rendered obsolete by Tesla and other competitors over the next few years.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Tesla, and Walmart. The Motley Fool has a disclosure policy.

Better Buy: Plug Power vs. ChargePoint was originally published by The Motley Fool