The pitch for Clean Energy Fuels (NASDAQ:CLNE) is that natural gas is better for the environment. But “it ain’t necessarily so” and, as a result, there’s been a reversal of fortune for CLNE stock investors, with the shares down from five-year highs tipped in March 2021.
Even a $500 million order from Amazon (NASDAQ:AMZN), which includes warrants in CLNE stock, failed to provide a lift on the mid-April news. The company’s second quarter report, accounting for the warrants, nearly wiped out its revenue.
But the biggest problem isn’t the environment. It isn’t the dilution of shareholders if Amazon takes up its options. It’s the same problem every company has: profit, or lack thereof.
CLNE sells natural gas for trucking fleets. This includes compressed natural gas (CNG), liquified natural gas (LNG) and what the company calls renewable natural gas (RNG). The last is derived from processing animal waste, much of it from cows. (Other sources include landfills and solids from wastewater plants.) The Newport Beach, California company also builds and runs the filling stations that deliver its product.
The problem is, as InvestorPlace contributor Tom Kerr wrote recently, it’s not very profitable. Cutting expenses hasn’t improved matters.
The company’s latest earnings release talks about how much gas CLNE is delivering, 101.4 million gallons in Q2. It talks about Earnings Before Income Taxes, Depreciation and Amortization (EBITDA), beloved by analysts but irrelevant to investors. It doesn’t talk about earnings. That’s because for the second quarter earnings were just 1 cent a share.
The Amazon warrant, meanwhile, is valued at $78 million. Analysts pounded the table for CLNE after the deal was announced. But as our Ian Bezek wrote recently, there may not be much bottom line benefit.
Bezek’s story also talks about Clean Energy’s history. It’s not that clean.
The company was formed as Pickens Fuel in 1997. Legendary T. Boone Pickens, who died in 2019, was an oilman. He saw natural gas keeping the good times rolling as the environmental cost of gasoline became clear.
The natural gas industry now talks about “responsibly sourced” natural gas. But it’s all the same stuff. It’s methane. It’s all burned. It all produces carbon dioxide.
Environmental groups now see natural gas as a form of “greenwashing.” Oil interests hide behind gas the way the cigarette industry hid behind vaping. To get fueling contracts at the Port of Los Angeles, CLNE reportedly ran “Astroturf” campaigns, paying local people to engage in “grassroots” activism on its behalf.
The Investment Thesis
The investment thesis of CLNE is that natural gas is cleaner than diesel, and that RNG is worth a premium price. But it’s still not clean, and there’s no difference between gas from cows and gas from wells.
Clean Energy Fuels entered Aug.17 at $7.15 a share, a market cap of $1.68 billion on what should be $225 million in revenue for 2021.
The Bottom Line
I wouldn’t buy CLNE at $7. I wouldn’t buy it at $5. In fact, I wouldn’t take it if you paid me.
My view is that “Renewable Natural Gas” has a lot in common with “clean coal.” Clean coal is just coal someone has treated to make those burning it feel better.
The same is true with “Renewable Natural Gas.” Pickens’ dream was a fallacy. He didn’t account for the innovation that has made harvesting the sun and wind, cheaper than natural gas or even coal.
Economics is going to bury CLNE, or CLNE will bury us beneath the climate crisis. Amazon should write off its warrants.
On the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.