Alternative energy may eventually usher mankind into a new era, an era not dependent on the unsustainable burning of fossil fuels. One day, the vision goes, man will live off the sun, the wind and the current of the ocean. In the meantime, companies like Kandi Technologies Group Inc (KNDI) and Ballard Power Systems Inc. (USA) (BLDP) will help us wean ourselves off the teat of big oil.
We’re not quite there yet.
Kandi Technologies, a Chinese electric vehicle company, and Ballard Power Systems, an innovator in fuel cell technology, have each set out to do something different. But over the last year, neither stock has performed particularly well: KNDI stock is down 47%, while BLDP stock is off 24%.
Meanwhile, the S&P 500 is down 11%.
Is it a coincidence that these two small-cap alternative-energy plays have suffered over the last year? Is it merely a tough market environment that’s knocked these two stocks? Or is something fundamentally wrong with their businesses?
Let’s take a look at Ballard Power Systems and Kandi Technologies and see what’s been causing them problems throughout the past year.
KNDI, BLDP: Not Ideal for This Market
Honestly, neither one of these stocks is very well tailored for an environment like today’s. First and foremost, alternative energy or green energy investments in the areas of fuel cell tech and electric vehicles are far more attractive to big-time investors when the price of oil is through the roof, not down in the gutter.
That’s because when oil prices are incredibly high, the continual usage of fossil fuels becomes far less attractive. Not only does it pollute the planet and deplete a finite supply of a precious natural resource, but it costs a lot, too. Ew!
So goes the thinking. But instead of becoming more cost prohibitive in the past year, oil prices have fallen by more than 50%. Oil, trading just above $60 per barrel a year ago, goes for less than $28 per barrel today.
Making matters worse for KNDI and BLDP is the fact that both companies are speculative small-cap stocks. Kandi Technologies is a $307 million Chinese company with an irregular history of profits — not exactly the DNA of a stock market stalwart in a year that’s seen a ton of volatility in Asia.
As for BLDP, it’s a mere $200 million stock that routinely loses tens of millions of dollars annually. Although sales nearly doubled, going from $43.7 million in 2012 to $68.7 million in 2014, they are expected to decline swiftly in FY 2015 and slump to $57 million. That, along with the fact that analysts forecast a loss of 11 cents per share in 2015, makes this small-cap alternative-energy play even more speculative than it already was.
In conclusion, it’s no real shock that either BLDP or KNDI had a tough year, and I wouldn’t be surprised to see both stocks continue to underperform the markets for the remainder of 2016. I believe the recent market turmoil will spark a “flight to quality,” wherein large blue chips outperform at the expense of small- and mid-cap growth names.
Only time will tell, but for now, any rally in the markets is quite unlikely to be fueled by alternative energy stocks like these.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
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