Clean Energy Fuels (NASDAQ:CLNE) provides natural gas as an alternative fuel for vehicle fleets — and related fueling solutions for those fleets — in the United States and Canada. CLNE stock has developed renewable natural gas (RNG) to make the transition to carbon-free transportation.
The vision of Clean Energy Fuels Corp is to address climate change, aiming for its RNG fuel to be fully zero-carbon by 2025. And while compressed natural gas (CNG), and liquefied natural gas (LNG) for light, medium, and heavy-duty vehicles are also provided by the company, the main focus as a key advantage for its business is Renewable Natural Gas (RNG).
But why?
Why Renewable Natural Gas (RNG) Is Too Important
On its official website, Clean Energy Fuels has a dedicated section to RNG. It mentions that “Renewable Natural Gas (RNG) is a transportation fuel made from organic waste. It drastically reduces carbon emissions, and unlike conventional natural gas, RNG is not a fossil fuel and does not involve drilling.”
And there are several testimonials such as “It’s here now, it works, and it’s already rear-zero, in some cases sub-zero. And the technology is relatively inexpensive compared to some of the alternatives,” taken from Heavy Duty Trucking’s October 2020 Issue.
I do not argue that RNG is not an important alternative fuel that can make a big difference to climate change. But does CLNE stock reflect this potential, and should you consider it as an attractive investment?
CLNE Stock Should See Gains But Remains Too Volatile
The infrastructure bill supported by President Joe Biden’s administration should move forward by the end of September 2021. The bill offers a vision on America’s infrastructure, including clean energy and electrification of mobility, that in theory should be supportive for CLNE stock.
But it is a very volatile energy stock with a Beta (5Y Monthly) of 1.94 according to Yahoo! Finance. And an extra factor that has made CLNE stock too volatile is the “meme stocks” frenzy.
How else to explain a 52-week range of $2.36 – $19.79 and a recent stock price of $8.02? Retail investing stock market boom, FOMO, FUD, and a new retail trading trend that moves stocks too fast, too high, and then dumps them, too fast too low.
But while I ignore this meme status for CLNE stock, I place all of my attention on its financials. But first some news on the company.
Business News
Clean Energy Fuels “announced a slew of new deals in response to the demand for renewable natural gas (RNG), a fuel produced from organic waste, as more fleets adopt and expand their use of the low-carbon transportation fuel. RNG represents more than 74 percent of the 26 million gallons of fuel Clean Energy expects to provide through these recent signed agreements.”
More deals were reported, with “new renewable natural gas (RNG) contracts as fleets across North America increasingly continue to adopt the clean, low-carbon fuel to power heavy- and medium-duty trucks.”
And there is a strategic partnership with Chevron Corporation (NYSE:CVX) to reduce emissions in large fleets.
What I find also very interesting is the news that Clean Energy Fuels “was investing to develop renewable natural gas from dairies and other agricultural facilities.”
All this is positive. What is not so positive is financials and valuation though.
Financials: Weak Revenue Growth Is a Large Problem
Clean Energy Fuels Corp has a strong balance sheet with a debt-to-equity ratio of 0.1 and a cash-to-debt ratio of 3.32 according to GuruFocus. Its profitability, though, is a whole new story — a very negative one.
With a very weak sales growth of 1.41%, 1.22%, and -17.41% for 2018, 2019, and 2020 respectively, things are not rosy from the very beginning of financial analysis for CLNE stock. With net losses in four of five fiscal years for 2016-2020, I am not impressed either. A net profit of $20.42 million in 2019 turned to a loss of $9.86 million for 2020 according to MarketWatch.
I am also skeptical about the volatile free-cash-flow trend, as it constantly moves from losses to gains. Ideally, I would like to see a positive sustainable trend. But still, Clean Energy Fuels Corp had a stock repurchase in 2020, which is odd for a company with declining revenue growth and mostly net losses. I would like to see more of it though.
The operating results for Q2 2021 confirmed my biggest concern — a substantial revenue decline.
“The Company’s revenue for the second quarter of 2021 was $0.5 million, a decrease of 99.2% compared to $59.9 million for the second quarter of 2020.” At the same time, “the Company delivered 101.4 million gallons in the second quarter of 2021, a 13% increase from 89.5 million in the second quarter of 2020.”
I am not too optimistic.
And even valuation seems to be far stretched.
CLNE Stock Valuation: Not That Cheap Yet
I like when a company puts key ratios on its website as a start for financial analysis. Kudos to Clean Energy Fuels. What makes me too concerned though?
I find the price to cash flow (FY) of 50.21 and price to revenue (FY) of 6.22 to be very high, supporting my thesis that CLNE stock is not cheap.
Overall I see a lot of potential for Clean Energy Fuels Corp, but its stock is not that attractive now given its weak revenue trend and volatile free cash flow.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.
