If you were judging by their relative performance over the past year, it would be easy to assume that Plug Power (PLUG -5.17%) is a better investment than Tellurian (TELL 28.11%). After all, the hydrogen fuel cell pioneer has delivered 151% in gains since the beginning of 2019, while LNG start-up Tellurian's stock price is about flat.
But going forward and looking at the longer term, I expect Tellurian should prove to be the better investment. After all, Plug Power has a long history of losing money, underdelivering on sales and cash flow projections, and destroying shareholder value, while Tellurian's leadership has an enviable track record of success building a big, profitable LNG business.
Plug Power's path is littered with losses. Investors have a better shot at making money with Tellurian. Image source: Getty Images.
Simply put, investors looking for growth stocks should look away from Plug Power and give Tellurian serious consideration.
Plug Power: A decade from profitability (and always will be?)
There's a saying that has been used to describe technologies that have massive appeal but seem to remain just out of reach: "It's 10 years away, and it always will be." Unfortunately, Plug Power's path to profitability seems to have fallen into the same boat. In two decades as a public company, it has never come close to having a profitable year and has burned through mountains of cash:
PLUG cash from operations (annual). Data by YCharts.
Moreover, the losses have actually increased over the past decade, even with sales having increased a remarkable 13-fold. That's right: Plug Power has actually lost more money as sales have grown.
You may be wondering how the company is still in business after 20 years of regular losses. In short, management has proven far better at selling investors on the potential for fuel cells than in building a profitable fuel cell business. Since the beginning of 2010, Plug Power's share count has exploded and its debt has more than tripled:
PLUG shares outstanding. Data by YCharts.
The result? Shareholders have seen the stock lose more than half its value over that period, even though Plug Power's market capitalization -- the value of all its shares -- has increased 728%. Ouch.
"But things are getting better!" Investors might say. Maybe. Sales are likely to grow at an accelerated rate going forward as fuel cell use is rapidly expanding. Here's the rub: The company is on track to -- once again -- miss cash flows guidance, and is -- once again -- diluting investors with plans to sell as many as 46 million new shares.
Yes, I'm being glib in describing the company as being "a decade from profitability," but let me be as blunt as possible. Plug Power has proven far-better at making money selling stock than it has making fuel cells; management has to demonstrate it can do otherwise before it's a stock worth buying.
They've done it before
Tellurian, on the other hand, counts two of the biggest names in LNG as co-founders, in its Chairman Charif Souki and Vice Chairman Martin Houston. Souki is best known as the founder and former CEO of Cheniere Energy (LNG -0.73%), which he led until 2015, while Houston was the COO of BG Energy until its acquisition by Royal Dutch Shell, where he was responsible for building BG's massive LNG business.
Beyond these two successful founders, Tellurian counts Meg Gentle as CEO. Gentle spent more than a decade at Cheniere in various key roles across marketing, finance, and strategic planning. The majority of Tellurian's other executives are also Cheniere veterans, having led that company through the same phase of its development that Tellurian is now going through.
Unlike Plug Power and its steady cash burn despite recent sales growth, Cheniere has become a cash cow investment:
LNG revenue (TTM). Data by YCharts.
Going back to the beginning of Gentle's tenure at Cheniere, shares are up more than 900%, and it's reasonable to expect there's more profit to come as that company brings more LNG capacity online.
But back to Tellurian, and the point: Tellurian -- the company has yet to break ground on its Driftwood LNG export facility and associated pipelines -- is just a cash-burning start-up at this point. So yes, I'm calling out Plug Power's cash burn and then suggesting a company that will probably burn even more cash in the next three years as a better investment.
The difference? Tellurian has a management team with a legacy of building a profitable growth business, while Plug Power's legacy is two decades of value destruction.
As things stand today, the upside for Tellurian is gigantic. If the company hits the high end of its cash flows projections from Driftwood, it could realistically be a 10-bagger stock in the next five years, though it's probably more realistic to expect a more modest return. After all, it would take near-perfection in execution -- and perfect market conditions -- to hit the top of the range. But even a more moderate expectation points to a likely market-crushing investment over the next five years.
Where's the risk? Tellurian is starting from essentially zero and needs to raise about $30 billion to pay for it all. Some of that will be via dilution as it sells shares, but much of it will be financed with debt, and partnerships with global energy partners. Put it all together, it boils down to execution and to navigating capital markets effectively over the next few years.
But it's a risk worth taking, with massive -- and growing -- global demand for LNG and a management team that's proven it can do it.
Not a hard call, but there's risk both ways
It's possible that Plug Power's management finally gets it right, and it sees enough critical mass of sales in coming years to finally start making money and delivering sustained returns to investors. It's also possible that Tellurian's management doesn't repeat its success at Cheniere and ends up wiping investors out with poor execution (or bad timing if it fails to raise the necessary capital).
But with history as a guide, I think investors would do well to invest with the management that's proven successful in the past and avoid the company that's spent two decades burning capital and leaving investors little to show for it. LNG and fuel cells both have great growth prospects. But as things stand now, Tellurian looks like the much better growth stock to buy.
