Please ensure Javascript is enabled for purposes of website accessibility

Better Buy: Plug Power vs. Canadian Solar

By John Bromels – Apr 2, 2020 at 9:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock market has hammered both of these clean energy companies. Which is more likely to bounce back?

Hardly any sectors of the stock market have brought joy to investors in recent weeks, but the renewable energy industry has been particularly grim. The NASDAQ Clean Edge Green Energy Index dropped 23.4% in March, compared to a 12.5% decline in the S&P 500

That's been bad news for solar companies like Canadian Solar (CSIQ -1.45%) and hydrogen fuel cell companies like Plug Power (PLUG -5.47%). Both saw shares plunge by about 20% last month. But that could be a chance to buy in. Let's dig a little deeper to see which of these underperforming renewable stocks looks like the better buy.

A man's hand holds a lit Edison bulb against a grassy background.

Image source: Getty Images.

Cheap fuel beats renewable fuel

On March 9, talks among OPEC+ nations broke down, with Russia and Saudi Arabia each vowing to ramp up production in April, flooding the global oil market with cheap crude. Other countries followed suit, and oil prices collapsed. Benchmark Brent crude prices were cut almost in half, from over $50 per barrel at the beginning of March to just over $25 per barrel at the end of the month.

When oil prices drop, renewable fuel stocks also tend to suffer. After all, why would someone -- say, a business with a truck fleet -- pay the high up-front costs to switch to renewable fuels when they could just buy cheap gas? 

That's the question investors may be asking about Plug Power. The bulk of the company's revenue right now comes from selling hydrogen fuel cell-powered forklifts to warehouses. Its customers include retail heavyweights like Amazon (AMZN -3.01%) and Walmart. However, Plug really wants to break into the heavy-duty motile market by selling fuel cell-powered delivery vans. 

There's no doubt that warehouses and delivery vans are seeing a surge in activity as homebound consumers opt to have items shipped to them, but with gasoline so cheap, it's unlikely that this will translate into a surge of orders for new fuel cell-powered delivery vans.

Big investments may have to wait

While Canadian Solar isn't in the fuel industry, the company's solar module sales may run into a different type of problem -- namely, the novel coronavirus pandemic.

Canadian Solar manufactures solar modules and inverters for residential, commercial, and utility-scale photovoltaic arrays. However, with the coronavirus pandemic crashing the global economy, governments are diverting resources to stemming the spread of the virus, investing in their healthcare infrastructure, and ensuring the economic well-being of their citizens. Even after the outbreak runs its course, it's unclear how many governments will have the appetite -- not to mention, the budget -- for expensive solar installations. The silver lining is that Canadian Solar currently has 3.7 gigawatts of backlogged projects that could help keep it busy while it waits for a turnaround. 

Corporations reeling from the economic effects of the coronavirus, and homeowners whose livelihoods have been affected, are also unlikely to make big investments in solar, either. And while some of Canadian Solar's customers -- including Amazon -- may weather the pandemic with minimal aftereffects, that's certainly not going to be the norm. 

Add to this the sunsetting of the U.S. Solar Investment Tax Credit -- which did not get renewed in the recent $2 trillion stimulus package, as some advocates were hoping -- and things look bleak in the near term for solar companies like Canadian Solar.

The better business

With both companies facing uncertain prospects in the short term, and the global economic downturn throwing a wrench into long-term projections for renewables of all types, we'll have to evaluate the fundamentals of these companies to see which is likelier to outperform.

Fortunately for us, there's really no comparison here. While Canadian Solar certainly has some drawbacks -- solar companies in general have underperformed since 2015 -- it has at least been consistently profitable for the last five years. While its debt load is a bit higher than I'd like, the company has paid down some of its debt since 2018 without meaningfully diluting its shares. It also generated $600 million in operating cash flow in 2019, up from just $216 million in 2018.

Plug Power, on the other hand: Oof! Despite revenue soaring by 238.2% over the last five years, the company has only had one single profitable quarter in the last 10 years, and that was back in 2015. It's only posted positive quarterly EBITDA three times during that period (one of which, admittedly, was last quarter). It's never posted positive operating cash flow on a trailing-12-month basis in its 20-year-plus history. What it has managed to do over the last five years is balloon its long-term debt from zero all the way up to $331.8 million and increase its share count by 50% to keep itself afloat.

'Nuff said. 

And the winner is...

These are both troubled and risky companies that are facing uncertain near-term outlooks, and even some questions about their long-term viability. However, only one of them is profitable and cash flow positive, while the other is falling deeper into debt and diluting its shares to boot. Canadian Solar is the clear winner. 

However, investors should be careful before buying either of these companies right now. With so many near-term concerns, the risks may outweigh any potential benefits of buying at depressed prices.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Bromels owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canadian Solar Inc. Stock Quote
Canadian Solar Inc.
CSIQ
$36.84 (-1.45%) $0.54
Plug Power Inc. Stock Quote
Plug Power Inc.
PLUG
$22.63 (-5.47%) $-1.31
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.78 (-3.01%) $-3.53
Walmart Stock Quote
Walmart
WMT
$130.06 (-2.50%) $-3.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.