Is Clean Energy Fuels Destined for Greatness?

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's look at what Clean Energy Fuels' (NASDAQ: CLNE  ) recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you're about to see tell Clean Energy's story, and we'll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always be reported at a steady rate, we'll also look at how much Clean Energy's free cash flow has grown in comparison with its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Clean Energy's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.

Is Clean Energy managing its resources well? A company's return on equity should be improving, and its debt-to-equity ratio declining, if it's to earn our approval.

By the numbers
Now, let's take a look at Clean Energy's key statistics:

CLNE Total Return Price Chart

CLNE Total Return Price data by YCharts.

Passing Criteria

3-Year* Change 

Grade

Revenue growth > 30%

173.1%

Pass

Improving profit margin

69.8%

Pass

Free cash flow growth > Net income growth

(374.6%) vs. (46.1%)

Fail

Improving EPS

9.2%

Pass

Stock growth (+ 15%) < EPS growth

(4.7%) vs. 9.2%

Pass

Source: YCharts.
*Period begins at end of Q3 2009.

CLNE Return on Equity Chart

CLNE Return on Equity data by YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

31.5%

Pass

Declining debt to equity

521.1%

Fail

Source: YCharts.
*Period begins at end of Q3 2009.

How we got here and where we're going
Despite persistent unprofitability, Clean Energy appears to be moving in the right direction, as it's picked up five out of seven passing grades thanks to a recent uptick on bottom-line metrics, except for raw net income. However, a steep decline in free cash flow, from leaking to hemorrhaging, is worth keeping an eye on, as Clean Energy has been forced to take on a much larger debt load to pay for it. However, if natural gas fueling reaches an adoption tipping point, concerns over debt and expenses would be rendered moot -- or so the theory goes, at least.

I recently examined Westport Innovations (NASDAQ: WPRT  ) using this same grading system, and it's interesting to note that Clean Energy turns in a much better performance, despite Westport's status as the "golden child" of natural-gas transportation. Is Clean Energy really better positioned in the push for a nat-gas vehicle infrastructure? I have argued before that Clean Energy and Westport are locked in a chicken-or-the-egg conundrum, in which the fueling infrastructure is necessary to speed nat-gas engine adoption, but without nat-gas engine adoption, there can be no demand for a fueling infrastructure.

My fellow Fool Sean Williams doesn't see the value in Clean Energy's particular business model, noting the same chicken-or-egg problem that's preventing automakers from going all in on nat-gas technology. While Sean focuses on consumer automakers like Ford and General Motors, which both have contracted with Westport to produce nat-gas vehicles, a more immediate source of Clean Energy's growth is certain to be trucking and other heavy-duty transportation vehicles. Clean Energy and Navistar International (NYSE: NAV  ) formed a partnership last year to promote nat-gas trucking using Westport and Cummins' (NYSE: CMI  ) engines. It's going to take aggressive action by all four parties to speed the adoption of nat-gas fleets, and thus far Navistar has fallen behind, as its promised nat-gas-engined truck has not yet come to market.

Clean Energy already has two significant customers -- Waste Management (NYSE: WM  ) and Republic Services (NYSE: RSG  ) , the two largest American trash haulers -- combining for nearly 3,000 nat-gas vehicles between them. In spite of those key deals, or perhaps because of them, Clean Energy continues to bleed cash as it builds out its infrastructure. At some point, this buildout may taper off and result in rising profitability for Clean Energy, but there is no indication of when this might occur. At the very least, it will be several years away -- consider how many gas stations you pass by on your daily commute.

Putting the pieces together
Today, Clean Energy has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Clean Energy Fuels is a stock with many risks, but great potential rewards. Make sure you're on top of the most important details of this fast-moving company with The Motley Fool's all-new premium research service. Inside, you'll find exclusive analysis on Clean Energy's key initiatives, major opportunities, and greatest threats. You'll also get a full year of regular updates as more information becomes available. Don't miss out -- click here to subscribe today.


Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 13, 2013, at 2:01 AM, foolishlycuriose wrote:

    Here's another analogy to consider when comparing WPRT and CLNE:

    During the gold rush days, many thousands of people flocked to the gold fields to seek their fortune. Amongst them were a few merchants who concluded that supplying the miners with tools, food, clothing, and such presented less risk with a steady income. The majority of the miners did not strike it rich whereas the majority of merchants did.

    Stretching the analogy a bit, I liken WPRT to the miners and CLNE to the merchants.

    You may also want to consider that Mr. Rockerfeller made his (initial) fortune by supplying the fuel that led to the adoption of the gas powered engine.

    And finally, borrowing a line from the movie Field of Dreams: "If you build it (in this case the natural gas highway) they will come (aka the truckers with those new WPRT engines)".

  • Report this Comment On January 13, 2013, at 2:19 AM, TMFBiggles wrote:

    @ foolishlycuriose:

    It's an interesting analogy, but I don't buy the comparison to JD Rockefeller. Rockefeller succeeded by out-scaling his competitors in a highly fragmented industry and by building a vertically-integrated enterprise that got the oil out of the ground and then got it all the way to the consumer before anyone else was doing so. Clean Energy has no similar position, as it's dependent on the external factor of natural gas costs without being able to significantly influence them (at present). Also, Rockefeller built his fortune on kerosene and heating oil. Gasoline wasn't a major byproduct of oil refining, or in major demand, until after Rockefeller retired from Standard Oil.

    If you look in my "More Articles" (link next to my name at the top) for articles referencing "oil" you're likely to find some that cover Rockefeller, Standard Oil, and the importance of gasoline to the industry in more detail, should you be interested.

    I do like the analogy, I just don't think it works in this context, unless those merchants are setting up in the most remote locations and offering a discount, instead of setting up at major mining hubs and charging higher prices (low adoption nat-gas vs. high adoption gasoline/diesel).

    - Alex

  • Report this Comment On January 13, 2013, at 8:57 AM, foolishlycuriose wrote:

    @ TMF BIggles

    More than one town was built around a remote general store and market conditions (suppply/demand) determined prices just as they do today. I suspect that as the adoption rate for natural gas as a fuel increases so will the price; until then your point is well taken.

    Regarding JD Rockefeller, everything you said is true. To clarify my point, refining is part of the process that leads to a product that can be sold. But that product still requires a point of sale before any revenue can be generated.

    CLNE is clearly not in the refinement business nor is it a vertically integrated business (at least not yet). That said it is (presently) the leading supplier (point of sale) of natural gas just as Standard Oil was for kerosene and later gasoline through its ownership in the supposedly independent companies that came into existence after its breakup.

    Thanks for the history lesson. Looking forward to reading your future articles.

    Long CLNE

  • Report this Comment On January 14, 2013, at 5:04 PM, robertinvestor wrote:

    P/E Growth Investor Peter Lynch

    CLNE gets a 0% rating based on Peter Lynch's methodology. Detailed analysis of CLNE by Peter Lynch

    0%

    Detailed Analysis

    Value Investor Benjamin Graham

    CLNE gets a 29% rating based on Benjamin Graham's methodology. Detailed analysis of CLNE by Benjamin Graham

    29%

    Detailed Analysis

    Momentum Strategy Investor Validea

    CLNE gets a 21% rating based on Validea Momentum methodology. Detailed analysis of CLNE by Validea Momentum

    21%

    Detailed Analysis

    Growth/Value Investor James O'Shaughnessy

    CLNE gets a 25% rating based on James O'Shaughnessy's methodology. Detailed analysis of CLNE by James O'Shaughnessy

    25%

    Detailed Analysis

    Small Cap Growth Investor Motley Fool

    CLNE gets a 29% rating based on Motley Fool's methodology. Detailed analysis of CLNE by Motley Fool

    29%

    Detailed Analysis

    Contrarian Investor David Dreman

    CLNE gets a 14% rating based on David Dreman's methodology. Detailed analysis of CLNE by David Dreman

    14%

    Detailed Analysis

    Growth/Value Investor Martin Zweig

    CLNE gets a 15% rating based on Martin Zweig's methodology. Detailed analysis of CLNE by Martin Zweig

    15%

    Detailed Analysis

    Price/Sales Investor Kenneth Fisher

    CLNE gets a 20% rating based on Kenneth Fisher's methodology. Detailed analysis of CLNE by Kenneth Fisher

    20%

    Detailed Analysis

    Read more: http://www.nasdaq.com/symbol/clne/guru-analysis#ixzz2Hz6MHoV...

    mf gives it a rating of 29% this is not good from mf or any other

  • Report this Comment On January 22, 2013, at 5:32 PM, titus103 wrote:

    I believe that clne is a long term buy. Note the industry is getting negative feedback on fracking and this effects clne. My question having just driven across country is why clne isn't tying up with someone like LOVE gas stations for trucks. All the trucks seem to stop there and it would be a perfect place or co. to partner with. Bob

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2192735, ~/Articles/ArticleHandler.aspx, 8/29/2014 12:24:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement