Fuel cells and hydrogen have been buzz words in the energy industry for decades, but it hasn't been until recently that they became significant businesses. Fuel cells have failed to gain traction in the passenger vehicle market, but found niches like forklifts and backup power generators. And that may just be the start of the industry's markets.
Based on the industry's prospects, Plug Power (PLUG 1.26%) and Bloom Energy (BE 10.99%) have a lot of potential, but I think only one is a great buy today.
Image source: Getty Images.
Where we stand today
Before we get too far into these companies, below is a chart with three important metrics for investors to consider: market cap, revenue, and net income. You can see that Plug Power has a market cap more than double that of Bloom Energy but Bloom has more than twice the revenue.
PLUG Market Cap data by YCharts.
On the bottom line, Bloom Energy is clearly losing more money, but there may be a good reason for that.
Plug Power's path to growth
Plug Power has grown revenue 160% in the past two years alone, and given a large number of orders for forklift fuel cells, it should keep that growth going. The company's problem has always been turning that growth into profits. Over the last half-decade, revenue has jumped, but the Plug Power is losing even more money than it was five years ago. And gross margin isn't improving, either.
PLUG Revenue (TTM) data by YCharts.
To stay afloat, the company continually issues new shares, diluting shareholders. In fact, it issued 30.7 million shares earlier this month. To show just how big a problem this is, Plug Power's shares outstanding are up 2,310% in the past decade (before this most recent issuance). Until the company proves it's done burning cash, I don't see the dilution stopping.
One of Plug Power's biggest problems is that it's trying to sell fuel cells into a very competitive forklift market. Customers are cost-conscious and given the deals it has with Walmart and Amazon, we can see that either sale prices are extremely low or costs aren't under control, but either way these large deals haven't led to a profit. That's unlikely to change anytime soon unless Plug Power can develop a new market where it has pricing power and a real competitive advantage.
Bloom Energy's changing future
Bloom Energy's start as a business was supplying fuel cells that converted natural gas to hydrogen and then electricity on demand. These were primarily used to provide backup power for businesses looking for a low-carbon option. But hydrogen wasn't actually its core business, though now that's changing.
Last year, Bloom Energy announced that its fuel cells could run on "renewable" hydrogen (hydrogen made from wind and solar using electrolysis), and in 2020, it's taken that hydrogen strategy to the next level. The company said it's installing commercial hydrogen-powered fuel cells and electrolyzers in South Korea later this year to produce clean electricity. It also has a new partnership with Samsung Heavy Industries to develop fuel cell-powered ships to meet the International Maritime Organization's 2030 and 2050 environmental targets.
Bloom Energy's fuel cells moving into the renewable hydrogen market, and the company is also finding new uses for them in potentially high growth markets. But what investors should be most excited about is the fuel side. The company's electrolyzers, which convert water to hydrogen using electricity, could provide clean fuel for the grid, businesses, and even large ships. And given how new these markets are, I think Bloom Energy has a chance to grow rapidly as energy gets cleaner.
Bloom Energy is the better stock today
I think the real difference between Bloom Energy and Plug Power is their long-term prospects. Bloom Energy is a bigger company by revenue and yet it's just getting started supplying large customers with fuel cells and electrolyzers. I think it's only beginning to tap its potential.
Plug Power may be smaller, but it's far more mature. It's built a large company providing fuel cells and hydrogen to companies operating forklifts and yet hasn't turned that booming business into any profits. In fact, it continues to dilute shareholders year after year as it loses more money. Unless management proves me wrong, I assume those losses will continue.
Neither of these companies are profitable today, but I think Bloom Energy has a much better chance to become a truly disruptive company in the energy industrynow that it's going all-in on renewable hydrogen. If it can do that, it'll be a great stock for investors and is addressing much larger markets than Plug Power is currently serving.
