Clean energy stocks have been absolutely on fire the last few months. It's easy to get excited about this growth industry: A new administration is already pushing for more wind and solar energy projects, electric vehicle sales are expected to explode in the next few years, and emerging technology for hydrogen could bring exciting disruptions.
Amid all of the excitement, there are some stocks that I think have gotten way out in front of their real value. Hot stocks Sunworks (SUNW 0.42%), Blink Charging (BLNK -2.45%), and FuelCell Energy (FCEL -4.65%) are three clean energy stocks that I simply wouldn't touch as an investor, and there are good reasons why.
There's no question that solar energy is growing in the U.S., but not all solar installers are created equal. Not only is Sunworks a small solar installer, but it also has relatively weak financials and is competing in a commercial solar market that's been notoriously low margin over the long term. Just look at the financials below and you can see that Sunworks' revenue is in decline, margins are at best stagnant in the teens, and the company continues to lose money year after year. Still, the stock is at an all-time high.
There are certainly some tailwinds for the industry, like a recent extension of tax credits, but installers still need to show they can make money. Sunworks is a hot stock right now, but it has poor financials and strong competition from bigger companies like market leaders SunPower and Sunrun. These factors add up to make it a risky pick.
Sunworks also doesn't provide any technology or services that aren't also offered by others in the market. And as we move to an industry where services like energy storage and flexible financing are more important, I don't see this highly valued stock doing well.
The electric vehicle (EV) charging space may be one of the most overhyped in 2021. Blink Charging's stock is up an incredible 2,980% over the past year and is one of the market's best performers. But what about the company itself?
Despite having a market cap of $2.6 billion, Blink Charging made just $4.5 million in revenue over the past 12 months and lost $12.8 million.
There are certainly paths for Blink Charging to grow. I highlighted in November that management's plan to use a high stock price to acquire competitors and expand the business is a good one. But there are only so many EV charging companies to acquire, and at the end of the day the Blink needs EVs to charge in order to make money. Let's do some back-of-the-napkin calculations on how much growth the company could potentially generate.
In 2018, the U.S. surpassed 1 million EVs on the road, and the Edison Electric Institute expects there to be 18.7 million total EVs by 2030. That projection may be off, but if we just ballpark a potential increase of 20 times in Blink Charging's revenue over the next decade, it would reach $90 million in revenue 10 years from now. That's a 10-year forward price-to-sales ratio of nearly 30!
I like EV charging as a growth business, and Blink Charging may indeed build the biggest network in the U.S., but this stock is so expensive I wouldn't touch it right now.
We've been through hype cycles before with FuelCell Energy and they've never ended well. Every few years, investors seem to get excited about fuel cells and push the stock higher. But the cycle has always ended the same way: Shares falling and investors getting diluted as management sells more shares in order to fund future losses.
The reason this dilution continues to take place is simple: FuelCell Energy doesn't make any money. You can see below that not only has the company lost money each year in the past decade, it's losing more now than ever.
This time may indeed be different for fuel cells and hydrogen, but FuelCell Energy is not where I want to place my bets. The company has never lived up to expectations, and there's no reason to think it will in this hype cycle, either.
Too hot to touch
You'll see some themes in these stocks highlighted. Each of these stocks are on fire, but the underlying companies are losing money, with no real prospect of turning that around anytime soon. The clean energy economy may boom over the next decade, but these companies haven't proven they can make money and are too highly valued to invest in today. If shares come back to Earth, they're businesses that could be interesting for investors, but for now I wouldn't touch them with a 10-foot pole.