The hydrogen market in 2023 is not as appealing as some investors might hope, with many hydrogen stocks being ones to sell. While hydrogen has the potential to be a green and flexible energy source, it faces many hurdles in terms of production, distribution and cost. Compared to solar or wind power, hydrogen is less efficient and more expensive to produce and transport. Moreover, hydrogen requires large-scale infrastructure investments that are not yet available in most regions. Therefore, hydrogen is unlikely to compete with other renewable energy sources in the near future.
Given this outlook, investors should be on the lookout for shaky hydrogen stocks. Especially ones that have high valuations and low profitability. Here are three hydrogen stocks to sell before they lose their value.
HydrogenPro ASA (HYPRF)
HydrogenPro ASA (OTCMKTS:HYPRF) is a Norwegian company that provides solutions for producing and storing hydrogen. The company’s main product is a high-pressure alkaline electrolyser that can produce hydrogen from water using electricity. The company claims that its technology is more efficient and scalable than conventional electrolysers, and can enable the transition to a hydrogen economy.
Unfortunately, HydrogenPro ASA has suffered from inconsistent revenue growth, decreasing gross margins and high operating costs. And the company heavily depends on government policies to support its sales. From 2020 to 2022, gross margins have plummeted from 76.1% to 18.6%. The company’s historical revenue growth can only be described as volatile, sometimes sharply increasing or declining from year-to-year, which implies HydrogenPro’s sale strategy has had trouble to gain sustainable traction with clients.
The company’s stock price has already fallen 36.7% YTD, which should be a strong signal current shareholders to dump shares before things get worse.
Nel ASA (NLLSF)
Nel ASA (OTCMKTS:NLLSF) is another Norway-based hydrogen platform that specializes in providing solutions for producing, storing and distributing hydrogen. The company’s main products are alkaline and proton exchange membrane water electrolysers. They also produce hydrogen refueling stations that can serve various applications such as industry, transport and power generation. The company has a strong presence in Europe, where it has several projects and partnerships.
However, unlike the prior entry, Nel ASA does not suffer from declining margins and totally inconsistent top-line growth figures. Instead, revenue has been on a general trend upward since 2019. Operating margins are what investors should be worried about. Nel’s EBITDA margins have been largely in the red for many years. As revenues increased rapidly year-to-year, operating costs also ballooned. In order for Nel to be a viable long-term investment, investors would have to see consistent improvements in profitability margins. Otherwise, the stock should probably remain out of their portfolios.
ITM Power (ITMPF)
ITM Power (OTCMKTS:ITMPF) is a U.K. based hydrogen energy company that produces fuel cells and electrolyzers for various sectors, such as mobility, industry and power. Despite all the good intentions around making another renewable energy source readily available, ITM Power has reported sluggish revenue growth numbers and enlarging net losses. In their fiscal year 2023, ITM Power only generated $6.6 million in revenue, a 7.1% decline from their fiscal 2022 figure.
Revenues stagnating year-over-year does not mean operating costs have also stayed steady. Rather, costs of goods sold (COGS) have actually managed to climb upward, pushing gross margins to record lows. The reason for these higher costs were partly related to contract loss provisions, which simply accounts for contracts that have lost their economic benefit due to delays, additional on-site engineering works, or increased energy and labor costs.
Given energy prices in the U.K. and Europe were so high last year, it makes sense some contracts lost their value and thus there was an uptick in COGS. As energy prices remain elevated in that region, investors should expect more pressure on gross margins for the next quarters. This company is definitely among the hydrogen stocks you will want to sell. Current shareholders are probably better off cutting their losses.
On the date of publication, Tyrik Torres 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.
