ITM Power (LSE: ITM)

ITM power is a UK-based manufacturer that produces hydrogen electrolysis machines. Hydrogen is a clean burning gas which some have touted as a better replacement for gasoline. ITM Power’s electrolysis machines are unique in that they are modular, transportable, and designed to work in conjunction with wind or solar farms to produce ‘green’ hydrogen. This contrasts sharply with BP and Shell’s ‘Blue’ hydrogen which is made by reforming methane, a process which releases carbon dioxide into the atmosphere.

ITM has been growing its business in recent months. It raised £250m this year to help fund the construction of two new factories, and had seen a 46% rise in its projected revenues over the next year followed by 31% over the next three years. However, it has seen a lot of share price volatility and diluted those shares to raise that £250m. As someone who believes in the future of hydrogen, I will be adding it to my portfolio. But it is a risky choice.

Plug Power (NASDAQ: PLUG)

At the other end of the hydrogen spectrum sits Plug Power. Plug produces the fuel cells needed to convert hydrogen into electricity. Hydrogen fuel cells themselves are not that complex although they can be expensive, and demand has historically been very low. Plug has been on the renewable energy scene for a very long time, first going public all the way back in 1999. The real question is though, is now the time for Plug to really shine?

Well…maybe?

It has seen incredible growth in revenues recently, averaging 30% over the last five years and 76% in just 2021 alone. It has also undertaken massive partnerships in France and South Korea to help expand their hydrogen fuel needs, and opened a new gigafactory in New York just this month. But Plug, like ITM, is yet to be profitable. The cost of revenue far exceeds the revenue actually attained and (according to the Wall Street Journal) the company is at least $700m in debt. Its growth over recent years is astounding and if renwable hydrogen really takes off then Plug has a chance. But that much debt with such low revenue and no profits makes this too risky for me.

Greencoat UK wind (LSE: UKW)

Greencoat is a much simpler choice for me than Plug or ITM. The investment firm owns or partially owns 40 wind farms across Britain and is expanding its holdings to offshore sites. Its net profit margin over the last five years has been 77% and while the amount of debt has increased, it has shrunk as a percentage of the company’s market cap.

Greencoat UK could be in for a tough year as energy firms struggle to stay afloat. But its reliance on an inconsistent resource means market resilience is baked into the business model. On top of that, electricity produced by renewable sources is already cheaper than that of coal or gas power plants. I believe that the soaring costs of fossil fuels will continue to increase the appeal of firms like Greencoat, and I’ll be adding it to my portfolio shortly.

Nevertheless, despite the sell-off, I remain confident in the longer-term potential for the company, so I have been buying more.

Why is Plug Power stock selling off?

Recently, Plug Power announced that there were some inaccuracies with its past financial reports. The fuel cell maker said that it would have to reissue some fiscal and quarterly results from 2018-2020. The company said that the mistakes didn’t affect the underlying business and that there were no issues raised regarding its fourth quarter 2020 and year-end results. Plug Power has also been swept up in the broader sell-off of growth stocks due to inflation fears that have caused treasury yields to spike.

What are the risks?

There are some things to be aware of, though, when it comes to Plug Power stock. In the last year, the company’s share price has had overall an incredible run, rising over 1,000%. Therefore, it could be argued that this sell-off recently isn’t overdone. The company was founded in 1997, and it has not yet demonstrated that its business model can be profitable. It reported a net loss of $476.3 million, in its last earnings report.

Tesla CEO Elon Musk has been a critic of hydrogen fuel cells, saying he believes they are unrealistic. However, General Motors and Toyota have stated that they are eager to embrace hydrogen.

What might the future hold for the business?

Recently, the company increased its 2024 billing target by more than 40% to $1.7 billion. JPMorgan projects the overall market opportunity for Plug Power to be greater than $200 billion, and expects it to show meaningful profits in 2023 to 2024. It recently upgraded Plug stock to overweight from neutral and maintained its price target at $65.

Why I am buying more Plug Power stock

Plug Power has ambitious plans and exciting future revenue targets, but of course these are speculative for the moment.  Yes, it isn’t profitable just yet but with clients like Amazon and Walmart, I am encouraged by the longer-term prospects for the company. The recent accounting errors are a cause of concern but these have no impact on current contracts, so I think they have provided a buying opportunity. I am happy to take the chance (again) on Plug Power. This is because in the future it has the potential to be a renewable energy heavyweight. Therefore, I am loading up on Plug Power stock here and lowering my average price.