Making Sense of the Fuel Cell Stock Hysteria

Watching the price of a stock change over a couple of months is normally a waste of time for investors, but when three companies that specialize in an energy technology that could revolutionize power usage surge more than 150% in a couple of weeks -- and one of them is still up more than almost 1,000% -- it's definitely worth looking into.

Price surges like this don't happen in a vacuum. I mean, we're not talking about Bitcoin here. Behind the curtain of wild stock prices and screaming pundits, there are actual businesses somewhere. So let's take a deeper look at these three fuel cell specialists -- Plug Power  (NASDAQ: PLUG  ) , Ballard Power Systems  (NASDAQ: BLDP  ) , and Fuel Cell Energy  (NASDAQ: FCEL  ) -- and see whether these these stock swings have anything tangible to them and whether they are truly worthwhile investments.

FCEL Chart

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We didn't start the fire
Fuel cells have been a hope and a dream in the energy space for decades. It's not a perfect comparison, but a fuel cell works rather like a battery, but you can recharge it with pure hydrogen gas instead of electricity. Many hope that fuel cells could be the next evolution for larger-scale energy storage because they can charge much faster and, in theory, can store eight times more energy than a traditional battery of similar size. So the company that can perfect this technology and make it commercially viable stands to make a lot of money. 

So if there is a string of good news surrounding one of these companies, you can see why it can instantly send the market into a frenzy.

This recent wild ride all started during Plug Power's conference call back in December, when CEO Andy Marsh stated that the company was on the verge of securing a major deal for its GenDrive fuel cell systems. This promise came to fruition when it announced that Wal-Mart had ordered 1,700 of these units, 44% more than all of the units it has sold to its four largest customers. Add a few contract renewals, a test program with FedEx to extend the range of electric delivery trucks, some bullish and bearish analyst reports, and an earnings release that showed the company was starting to show life and you get the recipe for a 1,500% surge.

Plug Power's drop-in fuel cell system (blue box) in a forklift manufactured by Crown Equipment. Source: Plug Power.

So where does Ballard come into place? Interestingly, all of Plug Power's fuel cell systems use Ballard's fuel cell stacks. Yes, you heard that right. Plug Power does not actually manufacture fuel cells -- it builds "fuel cell systems." These systems are drop-in replacements for lead-acid battery found in forklifts and other material handling equipment you find in distribution centers and warehouses. So by default, any good news from Plug Power is good news for Ballard. 

Fuel Cell Energy, on the other hand, has pretty much been along for the ride. Aside from the term "fuel cell," these companies have absolutely nothing in common. Fuel Cell Energy develops larger-scale fuel cells that convert natural gas to hydrogen gas, which then generates electricity without combustion. Plug Power's fuel cell systems -- which, remember, are actually Ballard's fuel cells -- use hydrogen gas directly and are used on smaller-scale power needs.

Both compete in completely separate markets and are more or less independent of each other, despite Wall Street's perception that fuel cell stocks are all the same. Ballard is pretty much the sole link between the two. It manufactures both hydrogen gas-fueled cell stacks for Plug Power and competes with Fuel Cell with its own natural gas-powered units

A backup power station manufactured by Fuel Cell Energy. Do you see a similarity to Plug Power's system? I don't. Source: Fuel Cell Energy.

Fuel Cell Energy did announce a few sizable orders and growing sales numbers at its most recent earnings release, but it also raised about $31 million from an equity issuance and reported yet another EBITDA loss. Not exactly a series of events that should result in a 150% uptick in share price.

The business behind the spectacle
Considering all the hype around them, you might assume these companies are fresh off IPOs or are penny stocks. They're not. All of these companies have been in business for more than 15 years and have market capitalizations above $600 million. Over that long history of being in business, each has incurred some heavy losses. That should be expected, though, because this is a technology that has taken decades to develop into a commercially viable product. And even though these companies have started to find some limited commercial success with their offerings, they all compete in very niche markets because of several technological and logistical limitations.

Example: Companies like Tesla Motors and Westport Innovations (NASDAQ: WPRT  ) may struggle with a lack of infrastructure for alternative fuel transportation, but it isn't even close to the weakness of hydrogen gas infrastructure. There are only 10 public hydrogen fueling stations in the entire United States. This makes it next to impossible for a hydrogen-powered fuel cell to exist beyond short route deliveries with a central hub for refueling.

Plug Power could very well dominate the material handling market, but the entire North American market is only valued at $800 million. The company is looking to expand into three more potential markets: refrigeration units for long-haul trucking trailers, ground support vehicles at airports, and battery replacements in electric hybrid package delivery trucks. These could drastically expand Plug Power's market, but it doesn't have any real offerings in these markets as of yet.

Fuel Cell Energy and Ballard Power systems don't exactly have a yellow brick road ahead of them, either. Their fuel cell power plants are looking to break into the remote power (places not connected to the electric grid), emergency backup power (hospitals, critical infrastructure), and combined heat and power (universities and corporate campuses) businesses. This space is becoming more and more competitive because of the efficiency gains on smaller-scale natural gas fired turbines. Capstone Turbine  (NASDAQ: CPST  ) , the most direct competitor in the small-scale distributed power markethas developed high-efficiency gas turbines that are on par with fuel cells in terms of efficency. But Capstone's turbines also are able to run on a wider range of fuels and have a lower cost of ownership.

Can fuel cells power a portfolio?
If you are looking to buy shares in a fuel cell company, you are probably looking at the future promise of the companies rather than past results. When potential comes into play, it's much harder to value a company. So let's compare these three companies with two others that are in a similar boat: natural gas engine designer Westport Innovations and natural gas turbine manufacturer Capstone Turbine. The two common threads between all of these companies is that they are all trying to fundamentally change the way we generate or use energy, and all are not yet profitable ventures. Without any net income to speak of, here are two metrics: price to average expected total revenue for the next 12 months based on analyst estimates and the compounded annual growth rate of sales over the past five years.

Company Price to Total Revenue (NTM) CAGR of Sales (Last Five Years)
Plug Power 9.01 16.8%
Ballard Power Systems 4.01 20.55%
Fuel Cell Energy 2.44


Capstone Turbine 3.03 25.6%
Westport Innovations 5.37 18.6%

Source: S&P Capital IQ, author's calculations.

What really stands out about this is Plug Power, despite having close to the lowest sales growth numbers in the most niche market of all the players mentioned here, it is currently priced at a premium more than double anyone else's. So it's pretty safe to say that the price for Plug Power is wildly out of touch with the fundamentals of the business. 

Based on the valuations, the estimated sales growth, and the constraints that fuel cells face over the next couple of years, it's awfully hard to see any of these businesses as sound investments today. If forced to make a choice, though, Ballard Power Systems is probably the best bet. It has more diverse product offerings and can compete in many more markets than the other two companies, and any success that Plug Power has in capturing market share in other realms will result in a win for Ballard. 

What a Fool believes
It is impossible to predict what the stock price on any of these companies will be in the near future, and anyone who does is probably just darn lucky. Plug Power's announcement that it had secured orders from Wal-Mart and is testing the waters with FedEx are good news for the company -- and, by default, Ballard -- that deserves some love from Mr. Market, but it certainly was not enough to merit a jump of 1,500%, or 1,000%, or basically any value the market has assigned these shares in the past several weeks.

These fuel cell stocks are likely to continue their bumpy ride for quite some time. So anyone who wants to invest in these companies for the value of the business rather than share-price speculation should probably stay away while the trading hysteria continues. 

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Read/Post Comments (13) | Recommend This Article (11)

Comments from our Foolish Readers

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  • Report this Comment On March 18, 2014, at 10:22 AM, Triller wrote:

    You forget about one thing. These fuel cell companies, and FCEL in particular is about capitalizing off of high power energy without any pollution. Pollution. No pollution, no nuclear waste, no hydrocarbon pollution. Whether it's syngas from Coal, natural gas or oil or gas, the only byproduct is warm drinkable water, and what is all the fuss about? Global warming and it only takes one day for Mr. Obama to get the gist of this technology for him to develop a dysfunctional website and install power stations throughout the country in order to reduce the pollution affecting places like Paris, LA, Korea, China especially, since many of these countries use coal for their primary power generation.....Pollution.

  • Report this Comment On March 18, 2014, at 10:58 AM, Triller wrote:

    there is nothing in this article about Pollution. That is the issue with Fuel Cells. That is why Fuel Cells have huge potential. When man, Obama finally understands that clean air means clean water, means clean lungs and body, means healthy man, then Fuel Cells will be worth every billion dollars spent to build out an infrastructure bases on Fuel Cell technology. Health is wealth. How much is it worth to you to breath clean air, to have an Ozone, for your children to not have asthma. How many cancers are caused by hydrocarbon particulates in the air, in your lungs? Just because you can't see it, doesn't mean it isn't killing you, slowly but surely. Clean up your act America and China, and South Korea. (FCEL) is partners with South Korea. When the right people catch on to the fact that Fuel Cells can eliminate fossil fuel exhaust, and produce the same power we are all used to, But without the pollution, that's when Fuel Cells will be worth their weight in Fossil fuels, all of them. BLDP in te auto industry and Fuel Cell Inc. in the power generation industry ......Fuel cells convert the stored energy in fuels like natural gas or hydrogen gas into electricity without combustion. The result is electric power generation with near zero emissions of NOx or CO.

  • Report this Comment On March 18, 2014, at 11:48 AM, TMFDirtyBird wrote:


    Fuel cells do actually create carbon emissions. Not because of the process from hydrogen to water, but to produce hydrogen from methane.

    The specs from Fuel Cell Energy's DFC300 model (found here: states that the fuel cell creates 900lbs of CO2 equivalent emissions per megawatt hour produced

    It also generates trace amounts of NOx and SOx pollution.

    It's a lot less pollution compared to many of the traditional methods we have used to generate energy, but it's not pollution free.

  • Report this Comment On March 18, 2014, at 11:55 AM, Decoy0527 wrote:

    Thanks for the article. Cleared up some questions I had. Made a few bucks on these 3 companies on the run up, but am staying away at the moment. I think this technology has a great deal of promise/potential, but right now they are bleeding edge instead of leading edge. Big difference.

  • Report this Comment On March 18, 2014, at 3:39 PM, Pagapa wrote:

    This was the most reasonable article I've seen on the fuel cell sector since the Citron Research article on PLUG was published. At the very least, you managed to dispel the foolish assumption that a fuel cell company is a fuel cell company is a fuel cell company.

    I agree wholeheartedly with your conclusion that BLDP is a better place to put dollars one might want to invest in fuel cells than PLUG. However, I think there's a strong case to be made for investing in FCEL that you have totally overlooked.

    You indicated that one of the reasons that BLDP is a better investment is because it has a more diverse product line. However, FCEL is the only fuel cell manufacturer with patents for both molten carbonate fuel cells and solid oxide fuel cells. This means that FCEL will ultimately be able to offer a far broader range of products than any of its competitors. You also indicated that BLDP competes with FCEL in the large stationary fuel cell market. While that is true, its PEM technology cannot be used in the full range of applications that FCEL's molten carbonate fuel cells can. One area where they can not compete is in using natural gas or biogas to produce hydrogen for fuel cell vehicles in a process called "trigeneration" (the production of heat, power, and hydrogen).

    You are correct that there are only 10 fuel cell fueling stations in the USA today. The reason is simple, fuel cell care manufacturers are not planning to introduce their fuel cell cars aren't planning to introduce their cars in every state during 2014/2015. They're only planning to introduce them in the Los Angeles and San Francisco markets this year. That's why there are 19 more fuel cell fueling stations already scheduled to come online in those markets in 2014 and California is currently evaluating proposals to expand that number further in 2015.

    If you spend some time analyzing California's plan for building out its infrastructure for hydrogen for cars and the technology under evaluation to support that infrastructure, you're likely to conclude that fuel cells for trigeneration will be an important component of that infrastructure. As of today, there is only one company that provided them: FCEL.

  • Report this Comment On March 18, 2014, at 4:53 PM, Pagapa wrote:

    Tyler, regarding your response to Triller, you are correct that fuel cells are not carbon neutral when natural gas is used as a feed stock. However, they are classified as carbon neutral when biogas is used as a feedstock.

    That's one of the things that makes the trigeneration capabilities of the FCEL DFC product line particularly attractive as a technology for hydrogen production.

    California plans to require 33% of the hydrogen sold for use in fuel cell cars to be from a 100% renewable source. When biogas is used as the feedstock, the hydrogen produced by a DFC is considered 100% renewable and the production process is carbon neutral.

  • Report this Comment On March 18, 2014, at 8:49 PM, btukwh wrote:

    To say fuel cells are emission free or carbon neutral doesn't quite make sense to me.

    Making synthetic gas from coal produces lots of bad things like arsenic, sulfur, chromium, carbon dioxide and leaves you with coal ash before you get to the fuel cell to generate power. Really not much better than just burning coal in a boiler.

    You can't process natural gas without producing carbon emissions. You have to do something with the C in CH4.

    The carbon neutral status of biogas is debateable. In the same sense coal is carbon neutral, but the time frame is longer. There was a time when we only used biofuel for energy. It didn't work out well for the forests.

    Yes if you oxidize hydrogen you get water. Still you have to make hydrogen and even a "renewable resource" is far from emission free. Solar panels, for example, do not grow on trees. They are made in factories powered by... electricity produced largely from coal. It takes a solar panel about twenty years before it generates more electricty than it took to manufacture it.

    You have to look at the whole process to understand which technologies are better for the environment.

    If fuel cells were truly a great, clean, reliable, economical, efficient power generator there would already be a huge demand. Unfortunately they are not. Maybe someday, but then again that's how they get you to buy their stock.

  • Report this Comment On March 19, 2014, at 10:05 AM, jaketen2001 wrote:


    Ballard and FCEL do not really compete in distributed generation. FCEL's carbonate fuel cell system is the favored application because it handles impurities better, is a little simpler, and is a little more efficient. Ballard has a product to put in the space that is at this time an alternative only if a cheap or free feedstock of hydrogen is available.

    Because of the long lag time in getting a carbonate fuel cell stack up to its operating temperature, it works in applications like distributed generation or full on MW power applications. Ballard's hydrogen PEM cells, on the other hand, operate at a much lower temperature and can come on line almost immediately (30 seconds), and adjust to changes in power demands instantly.

    That is why in terms of emergency back up power for telecom towers, Ballard's PEM cells are the favored application. Same for motive power in autos, bus, or material handling applications like Plug. You have to go with PEM because of response time. Also, the high operating temperatures of carbonate fuel cells limit them to stationary use. The carbonate construction of FCEL's product also can not currently handle the constant jarring and stop and go movement that platinum based PEM cells can.

    In terms of Capstone's ability to fend off fuel cells because of incremental improvements in turbine efficiency, that is not likely. The chemical process that occurs in fuel cells is 1.5-3 times more efficient than a mechanical process like a turbine, so its fuel will last longer. Greater run time during outages. Fewer moving parts. The CNG required in many of Capstone's systems is actually more difficult to supply than the non pressurized methane liquid Ballard's telecom stack can run on.

  • Report this Comment On March 20, 2014, at 1:10 AM, Triller wrote:

    Did I say pollution free? Sorry, I should be more specific, as far as the 900lbs of CO2 emissions, compared to the 1400 and 1500 plus CO2 emissions from Turbo generators along with the tiny trace elements of other poisons, this option is still better than all the other options, and when used with the favored fuel sources named by the manufacturers for the best results, there are plenty of positives with regard to Fuel Cells. I hate pollution and any effort to reduce or control the emissions we wantonly lace our atmosphere with is a major consideration. Clean air, clean water, clean lungs and digestive systems. Also, clean water and air are significant elements with regard to food products. Time to throw out the internal combustion engine with the trash, and please be responsible and put it in the correct dumpster. Seriously folks, every step toward a cleaner environment is one step closer to perfection. Defiling your body only leads to cancer, respiratory illnesses, unexplained diseases due to lowering the body's resistance to disease by ingesting foreign substances we have no business putting in our bodies. Now that we know, now we can do something about it. Fuel Cells are a good start.....What other type of high performance engine can generate our electricity to the degree we need it, and also these power plants help by being a buffer to the grid, by helping to regulate the energy from solar and wind fluctuations.

  • Report this Comment On March 20, 2014, at 5:46 AM, Triller wrote:





    Carbonate fuel cells may be one answer to capturing CO2 from the atmosphere. The manufacturer is Fuel Cell Energy, a company located in Danbury, Connecticut. Carbonate fuel cells normally using CO2 created ions for conduction in a continuous loop. But they can be altered so that the loop is interrupted and the CO2 can be emitted for the purpose of capture.

    Where would you use a carbonate fuel cell as a carbon capture device? Placed to siphon off gases in the exhaust of coal-fired power plants, a carbonate fuel cell could take CO2 from the air stream and concentrate it to about 70% by volume. It would then pressurize the gas and store it. The company believes that such a process could capture CO2 at a cost of between $20 and $30 per ton.

    Compared to other technologies used for carbon capture and storage, carbonate fuel cells look like a pretty good option but the current company products need to get much bigger. Right now a typical carbonate fuel cell generates a few megawatts/ Fuel Cell Energy, however, is working to scale the technology beyond a 1.49 Megawatt stack. They are doing this with cooperation and $2.4 million in funding from the U.S. Department of Energy. That's because the power industry will require a carbonate fuel cell capable of generating hundreds of Megawatts to make it commercially viable and to keep the cost of carbon capture within the $20 to $30 per ton range. Just like any technology, once its put into mass production the price comes way down. I just saw a clip on TV where a $500.00 dollar piece of medical equipment came down to $20.00 a piece after it was approved for sale. That's a big difference.....

  • Report this Comment On March 20, 2014, at 6:33 AM, Triller wrote:

    Apparently we are at a point in our evolution where we must choose between one or two more evils. Clean air comes at a price. We can argue about it forever, but the scientists and politicians will ultimately decide what road we take. Fuel Cells were used by the Space Shuttle, for good reason no doubt. We shall see.....the lessor of the two evils...Nuclear or Fuel Cells. No brainer on that call.....

  • Report this Comment On March 26, 2014, at 2:49 PM, seymourfroggs wrote:

    "It would then pressurize the CO2 gas and store it.."

    I'm skeptical about storing CO2.

    (On a different note, methane from bio-waste is co-generated with CO2; this can be converted to methane with H2 from fuel cells, though electricity is needed)

    It always comes back to clean electricity generation. Or less clean.

  • Report this Comment On April 16, 2014, at 7:47 PM, HoosierRube wrote:

    This was a superb analysis. What made it so successful, was the fact that it avoided the 'debate'.

    It stuck to the matter at hand; are these fuel cell stocks investable today? It wasnt coal vs. nuclear vs. biomass vs. solar vs. wind vs. nat. gas vs. geothermal *yawn* That stuff gets old after 30 years of hearing it repeated ad nausum.

    The debate issues matter, but i agree with the author about what will drive the companies and their stock prices. The goal wasnt to rehash stuff we all know and have known for a very long time. It was, what will drive the price of these stocks.

    As an investor, I feel confident that coal stocks will do well because coal companies will do well. Write down the stock prices of these 3 stocks today and include Peabody Coal (BTU). Come back at the end of the year, and I'd be confident to make the bet on coal. Come back after 5 years and again after 10 and the returns from the coal industry will far outpace almost everything else.

    And thats not a 'stance' on coal. It's dirty, I know. It has a lot of nasty consequences, I know. I dont disagree. But cost does matter. And thats what will drive the companies and their stocks.

    My preferred energy technology is irrelevant when it comes to the question at hand; How investable are these 3 companies.

    Everybody uses every opportunity to preach. We know, we know, we know, but thats not what we're talking about right now.

    And that my friends, was my sermon...

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Tyler Crowe

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