Can FCEL, BLDP and PLUG Keep Powering Up?

by Tom Taulli | March 6, 2014 3:03 pm

Not long ago, fuel cell operators like Plug Power (PLUG[1]), FuelCell Energy (FCEL[2]) and Ballard Power Systems (BLDP[3]) were penny stocks[4].

PLUG-BLDP-FCEL-stockIf anything, fuel cell stocks looked like they were headed for oblivion. But things have changed in an instant. Fuel cell stocks are now some of the hottest on Wall Street. And yes, we can attribute this to the powers of Tesla’s (TSLA[5]) Elon Musk as well as a mega deal involving Walmart (WMT[6]).

First, let’s take a look at the performance of fuel cell stocks over the past year:

Company Ticker Return
FuelCell Energy FCEL 186%
Ballard Power Systems BLPD 297%
Plug Power PLUG 3,595%

Crazy, huh? However, the market caps are still fairly small, in the $550 million to $650 million range. In other words, it hasn’t taken much buying to push up FCEL, BLDP and PLUG stock.

It also helps that short sellers have been flocking to these names. The result is likely that the shorts have been squeezed, which has added more buying power. (To close out a transaction, a short seller must buy back stock.)

So, what were the catalysts for the mega rally? One factor appears to be Tesla’s announcement of its Gigafactory, which will produce next-generation battery technologies. The speculation is that this will spur demand for fuel cells from companies like FCEL, BLDP and PLUG.

But another key has been Wal-Mart’s recent deal with PLUG. The retail giant has agreed to buy 1,700 hydrogen fuel cell systems for its truck fleet. It’s certainly a big validation – and greatly boosted PLUG stock. The hope is that other giant operators, say Coke (KO[7]), Home Depot (HD[8]) or Costco (COST[9]), will jump on the fuel cell bandwagon.

And yes, this could happen. But then again, investors have been hoping for this for many years. Keep in mind that – until recently — FCEL, BLDP and PLUG stock have been dead money from 2001 to 2013.

Besides, the companies are far from good shape. Here’s a look at the latest financials:

Company Revenues Net Income
FCEL $55.2M (2013) -$9.9M
PLUG $18.5M (9 months ended Sept. 30) -$38.8M
BLDP $61.2M -$21.7M

Those numbers prove just how costly it is to keep up with the new technologies. The sales cycles tend to be long, and the bidding on projects is often competitive. The result is that margins can be fairly thin.

Now it’s true that the growth prospects for fuel cell business looks bright. Companies are realizing that fuel cells are cost effective and can better help with environmental regulations. Again, validation from Musk and Walmart are largely responsible.

But that doesn’t mean the business will see much in the way of profits or that the path to growth will be smooth. Rather, it’s a good bet that it will still be tough to snag new customers. After all, it takes a lot of effort to implement new energy systems.

In other words, investors should wait until there are better values on fuel company stocks.

Tom Taulli runs the InvestorPlace blog IPO Playbook[10]. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. PLUG:
  2. FCEL:
  3. BLDP:
  4. penny stocks:
  5. TSLA:
  6. WMT:
  7. KO:
  8. HD:
  9. COST:
  10. IPO Playbook:
  11. @ttaulli:

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