When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether its possible upside outweighs its risks. Let's take a look at Clean Energy Fuels (Nasdaq: CLNE ) today, and see why you might want to buy, sell, or hold it.
Clean Energy, based in California and with a market capitalization of roughly $1.15 billion, is in the business of building and running fueling stations for vehicles that run on natural gas. It also delivers compressed natural gas and liquefied natural gas fuel for trucks, buses, and autos. It does some other things, too, such as financing purchases of natural-gas-fueled vehicles. As of the end of 2011, it serviced 273 fueling stations in 23 states, Canada, and Peru, and served about 530 fleets, with a total of roughly 25,000 natural-gas-powered vehicles.
Clean Energy's business focus is one reason to consider buying. There's great interest in alternative energy, especially as the price of oil has soared in recent years. The low price of natural gas, meanwhile, has spurred interest in technologies that use it.
Clean Energy's performance attests to that growing interest, with accelerating revenue growth over the past five years and an average annual growth rate in that period of more than 22%.
A substantial conversion to natural gas is already under way in the United States. Long-haul truckers are leading the way, and are being served by a partnership between Westport Innovations (Nasdaq: WPRT ) and Cummins (NYSE: CMI ) , where Westport designs engines to run on natural gas, and Cummins builds such engines. Even Navistar (NYSE: NAV ) , which makes trucks and other burly vehicles, is getting into the act, developing a natural gas fleet using Westport-Cummins engines. These companies see a big change in our nation's fuel picture in the near future, and they're investing in it.
The company is also involved in renewable natural gas fuel, owning most of a landfill gas facility in Texas that produces renewable natural gas, or biomethane, and planning a second one in Michigan.
Why might you pass Clean Fuels by? Well, for starters, it's not yet a profitable company, and its net losses have been getting bigger in recent years.
Its rising share count is another concern, as it reflects the dilution of value for existing shares. Less than five years ago, there were some 40 million shares outstanding, and that's up to about 78 million recently. Issuing more shares is a great way to raise funds, but it's counterproductive for shareholders.
Meanwhile, as my colleague Brian Stoffel has pointed out, many bears are worried about factors such as the relatively few natural gas fueling stations making widespread adoption difficult and the possibility of higher gas prices abroad keeping other nations from adopting natural gas. He counters those, though, by offering a map of Clean Energy's well-designed fueling-station network, and by pointing out that as the industry cuts back on natural gas production in order to bolster prices, it's in the industry's interest to still keep prices relatively low, to spur further adoption of the fuel.
Hold (or hold off)
Given the reasons to buy or sell Clean Energy Fuels, it's not unreasonable to decide to just hold off. You might want to wait for one or more quarters with net profits instead of losses. You might want to see the stock's share count stop rising. You might wait to see a bigger network of fueling stations in place, serving more fleets and vehicles, or legislation promoting conversion to gas, perhaps via tax incentives or subsidies. You might want to see the company successfully dealing with competition, too, such as General Electric, which is increasingly involved in alternative energies.
Alternatively, you might look at other promising alternative-energy companies, such as GT Advanced Technologies (Nasdaq: GTAT ) , which makes materials for the solar energy industry and has some investors newly excited, as it might also jump onto the exploding smartphone and tablet market offering materials for their casings. Remember that that's a chicken that hasn't hatched yet, though.
I'm holding off on Clean Energy Fuels for now. It may perform spectacularly in the coming years, but there are plenty of compelling stocks out there. Everyone's investment calculations are different, though. Do your own digging and see what you think.
If you'd like more help with that digging, check out our brand new premium research report that will keep you updated on Clean Energy Fuels as it reviews opportunities and risks facing the company and its industry.