It’s somewhat of a surprise that Bloom Energy (NYSE:BE) stock has posted a strong November. After all, presumably some investors bought Bloom stock hoping for election results that didn’t quite materialize.
Heading into the election, many analysts and some investors projected a so-called “blue wave” scenario. Polls suggested that now President-elect Joe Biden would win the election in a landslide, and that the Democrats had a strong chance of majorities in both the U.S. Senate and the House of Representatives.
That scenario seemed the most bullish possible outcome for Bloom stock and other clean energy plays. Yet it didn’t come to pass. Pending a pair of run-offs in Georgia, Republicans likely will keep control of the Senate. And while it seems Biden has secured the win, narrow victories in key states hardly suggest the projected landslide.
Yet Bloom stock has rallied just the same, gaining 43% in the first two weeks of November. And that rally gets to a key point: The case for BE stock no longer requires a perfect political environment.
In fact, I’m not sure it requires any help at all. The momentum behind alternative fuels is simply too great.
It’s that key fact that might explain why Bloom stock has rallied despite what could be considered negative election results. More importantly, it explains why the rally of the past two weeks should have further to go.
A Long History
One simple, and long-running, reason for skepticism toward any clean energy or alternative fuel stock has been the history of the industry. Every sector associated with clean or renewable fuels has typically been a graveyard for investor capital.
So for two centuries, give or take, investors have been promised tantalizing rewards from all of these technologies. Even the companies that weren’t outright scams — and there were more than a few of those — failed to deliver.
One core problem has been price. Relative to alternative fuels, fossil fuels have been substantially cheaper for essentially every application. As a result, consumers and businesses were willing to look past the flaws in fuels like oil and coal.
But we’re seeing two very real shifts. First, alternative fuels are becoming more competitive on price. Bloom Energy is a perfect example. Power generated by the company’s “microgrids” is actually cheaper than that provided by traditional utilities.
It may get cheaper still. According to Bloom Energy’s most recent investor presentation, cost per kilowatt-hour has come down a remarkable 85% just since 2008. Those improvements will slow, but they will continue. That in turn will make installations more and more attractive.
The second shift is just as important. Businesses, in particular, are focused on environmental issues. In some cases, it’s good business. In many others, it’s perhaps just good public relations.
But whatever the cause, nearly every company of size is focusing on the environment. Most have plans to get to “carbon-neutral,” and in some cases “carbon-negative.”
Bloom Energy can be a key part of those plans. While a company might not have seen the ongoing savings as quite worth the upfront investment, or taken a “wait and see” approach toward fuel cells, attitudes have changed.
The Case for Bloom Stock
That doesn’t mean that Bloom stock is without risk. As the old saw goes, “This time is different,” are the four most dangerous words in investing. Competition remains. And Bloom still needs to execute.
But the opportunity here is enormous. The addressable market, over time, could clear $1 trillion, based on existing global electricity demand.
With trailing-12-month revenue of just $758 million, Bloom Energy has an obviously long runway for growth. And with operating margin targets above 10%, this is a business that should be nicely profitable within just a few years.
Meanwhile, valuation doesn’t look all that onerous. Bloom stock, including debt, trades at about 6x revenue. That’s not necessarily cheap, but given the opportunity it’s, at the worst, reasonable.
It’s on that opportunity that investors should focus. Simply put, Bloom Energy can be an integral part of the clean energy revolution. And that revolution is taking place whether politicians are fully on board or not.
That’s the takeaway from the rally in BE stock over the past two weeks. And it’s a takeaway that suggests that BE can be a long-term winner, too.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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