Hydrogen fuel cells are hot again. 

So far in 2020, the biggest fuel cell stocks have handily outperformed the market. Shares of fuel cell generator manufacturer Bloom Energy (NYSE:BE) are up 7.5% for the year, while fuel cell vehicle specialist Plug Power's (NASDAQ:PLUG) shares are up 29.1%. Both are solidly beating the S&P 500's 11.4% year-to-date loss.

Let's take a closer look at these alternative energy companies and see which one looks like the better buy right now. 

Hydrogen tanks beside a fuel cell generator.

Image source: Getty Images.

Valuation disorientation

One easy way to decide which of two companies is a better buy is by looking at valuation metrics, like the classic price-to-earnings ratio. Unfortunately, that's tough to do with Bloom and Plug because of their lack of profitability. 

As a young company, founded in 2018, Bloom Energy's unprofitability isn't all that surprising. Lots of companies posted net losses for years before finding their footing and becoming winning investments for their shareholders. Plug, on the other hand, has been around for more than 20 years, and still hasn't managed to eke out a single year of profitability or cash flow positivity. 

Still, with both companies seeing big share-price gains in 2020, we should try to examine whatever valuation metrics we can. Price-to-earnings is out, as enterprise value-to-earnings before interest, taxes, depreciation, and amortization (EBITDA), and price-to-free cash flow, because both companies are posting negative earnings, EBITDA, and free cash flow. Really, price-to-sales (PS Ratio) is the only usable metric here, because both companies are, at least, growing their revenue. 

By this metric, Bloom beats Plug, with a 1.3 PS Ratio compared to Plug's 4.2. This metric only provides a snapshot of the companies' current value; it doesn't really tell us anything about which one is likelier to succeed over the long term. 

Pathways to growth

Comparing the companies' track records, Plug certainly has a longer history...but it's a history of unprofitability and negative cash flow. Bloom, at least, managed to generate positive operating cash flow during the second half of 2019. However, Bloom is also carrying a much higher debt load than Plug. And both companies have diluted their shares significantly over the past few years. 

Each company has seen limited success within their niche markets. Plug has had the most success deploying its fuel cell technology in warehouse vehicles, where there's limited downtime available for battery recharging. Meanwhile, Bloom has found a market for its fuel cell generators as backup power sources for corporate customers, and -- thanks in part to government subsidies -- as cheaper alternatives to grid power. 

Despite these limited successes, though, neither has yet achieved profitability. Plug hopes to get there by making inroads into larger vehicle markets, especially delivery vans. However, with traditional fuel and diesel prices currently very cheap, Plug may have trouble finding buyers willing to switch to a more expensive alternative.

Bloom, meanwhile, hopes to increase its sales of generators by expanding into new markets. Bloom's big problem is cost: When its generators are run on hydrogen extracted from cheap natural gas, they can provide energy at lower cost than grid power in some states, when subsidies are taken into consideration. However, in many states, traditional grid power is cheaper regardless, and subsidies may not be available for long in some areas. In particular, the federal fuel cell investment tax credit expires in 2021 and has not been renewed by Congress. If it goes away, both companies will be affected, but Bloom may suffer the most. 

Looking long term

Both companies have unfortunate histories of making questionable financial projections. Plug Power has made several promises of imminent profitability that never came to fruition. Bloom's CEO K.R. Sridhar, for his part, had to walk back optimistic financial projections in July 2018. Then, in February, Bloom announced it would restate several past financial statements. 

So, even though both companies put out optimistic near-term growth projections in their most recent quarterly-earnings calls, let's instead compare their best-case scenarios for long-term growth.

For Plug, the continuing shift from brick-and-mortar retail to online shopping and delivery -- which may accelerate due to the coronavirus -- could drive an increase in warehouse operations and delivery fleets. That could drive demand for Plug's products, although it's unclear whether customers would shift toward fuel cell vehicles or stick with standard options. Also, after more than 20 years of underperformance, there are genuine questions about whether Plug can actually execute such a plan.

Bloom contends that the coronavirus has made companies realize how important backup power is and projects increased sales of its backup generators as a result. South Korea has been a particularly strong market for the company, which makes sense since the densely populated country has high electricity demand but little space available for large solar or wind farms. Bloom could expand into countries with similar space issues like Japan or Singapore, in which electricity generation is comparatively expensive, which could drive growth.

And the winner is...

To be honest, both of these companies are very risky and speculative. Neither one has produced a game-changing product that seems likely to upend its industry, and both have real challenges moving forward. However, because Bloom currently sports a lower price-to-sales ratio and a viable market for its products in densely populated, resource-poor countries like South Korea, Bloom looks like the better buy.

Other energy sectors, though, have better prospects than hydrogen fuel cells. Investors should consider top renewable stocks before taking a chance on Bloom Energy.