Clean energy stocks have been on fire over the last six months as investors have bet on the future of electric vehicles and renewable energy electricity. And nearly every part of the industry has been pulled higher.
As clean energy stocks have risen, some have gone so far that they could be set for a crash. Three of our Foolish contributors think Blink Charging (BLNK +6.56%), Plug Power (PLUG +6.50%), and Clean Energy Fuels (CLNE +0.00%) are overvalued and set for a big pullback.
Image source: Getty Images.
A head-scratcher in EV charging
Travis Hoium (Blink Charging): The idea of building and owning a large network of electric vehicle charging stations seems like a great idea as EV sales grow, and that's why Blink Charging has become one of the hottest stocks of the past year. But the company may not be what it appears to be, and is absurdly valued today.
Let's start with the business model. Blink Charging is primarily a company that makes and sells EV chargers. It sells them to other charging networks, commercial building owners, and homeowners. Of the 15,716 charging stations it had deployed as of Sept. 30, 2020, 8,772 were sold to third parties and not on Blink's network. In the first three quarters of 2020, 69% of revenue was from hardware product sales. Let's be clear -- to date, most of what the company does is make and sell a hardware product, which doesn't involve owning the charging network and doesn't have recurring revenue.
A smaller percentage of the company's chargers end up on what's called the Blink Network, which had 6,944 chargers at the end of September. These are chargers that generate recurring revenue from EV charging and other fees. In the first three quarters of 2020, $800,000 out of $3.8 million in revenue was generated from charging and network fees.
What shouldn't be overlooked is just how small these numbers are. In the last year, Blink Charging has generated just $4.5 million in revenue, which is incredible for a company with a $1.7 billion market cap. And the losses for Blink Charging are nearly three times revenue.
BLNK Revenue (TTM) data by YCharts
The valuation of Blink Charging is crazy and the charging network doesn't have as many chargers as investors might think, but what I think really hurts Blink Charging is just how fragile its competitive advantage is. EV chargers are a commodity, electricity is a commodity, and the plug connection between chargers and EVs is an industry standard. Anyone can install a charger anywhere at a relatively low cost. I don't see how even the best charging network will have any competitive advantage, and EV charging certainly isn't the kind of business I would pay a huge premium for today.
Potential, but pricey
Howard Smith (Plug Power): Plug Power is counting on a hydrogen economy, and it has been making some moves to position itself for that future. In the past two months, it has announced three deals to expand its global reach. This week it announced the completion of one, with a $1.6 billion capital investment from SK Group. It will give the South Korean industrial company a 9.6% stake in Plug Power, and the companies will form a joint venture (JV) to establish a fuel cell factory and accelerate the expansion into Asian markets, including China.
Last month, Plug Power and French automaker Groupe Renault (RNSDF 1.40%) announced the intention to create a 50-50 JV to integrate Plug Power's fuel cell technology into commercial vans in Europe. The JV aims to claim more than 30% market share in European fuel cell-powered light commercial vehicles. And earlier this month, the company said it will partner with Acciona, a supplier of renewable energy infrastructure solutions. The venture will be a 50-50 JV that hopes to gain a 20% market share for green hydrogen business in Spain and Portugal.
Image source: Getty Images.
Domestically, the company is working to build a green hydrogen network that can compete with diesel fuel. Plug announced plans for a new green hydrogen facility using hydropower in western New York to serve the Northeast. Combined with its Tennessee facility, the company expects the network to grow to provide transportation fuel at similar-to-diesel costs.
All of that is a nice foundation and puts the company in a good position if adoption spreads. But the stock is currently priced for perfection, even after a 35% drop from recent highs. In its recently quarterly report, Plug said gross billings grew 42.5% in 2020 compared to 2019. In a previous business update, management raised its target for 2021 to $475 million, representing another 41% increase over 2020. It also raised its gross billings outlook for 2024 by 40% to $1.7 billion.
Assuming that all turns into booked revenue, valuing the company today on a price-to-sales basis results in 55 times 2021 sales, and 15 times 2024. That's pricey even if we knew the sales were guaranteed. There's potential here, but I expect the share price to continue to come in before there is more certainty.
Already a bumpy ride
Jason Hall (Clean Energy Fuels): I'm a huge fan of Clean Energy Fuels; I've said for years that it's one of the most under-the-radar stocks in the renewable energy transition. I've regularly pointed out that major heavy-duty fleet operators are adopting natural gas, especially Clean Energy's Redeem, its brand name for renewable natural gas generated from human-driven waste like landfills, agricultural activities, and wastewater treatment. As much as investor sentiment was chasing an electric- and hydrogen-powered future, renewable natural gas -- and Clean Energy's role in delivering it -- wasn't getting enough credit.
Well, that changed in a huge way last year, with shares gaining more than 450%.
More recently, though, we've seen the stock fall some 30%, and I think there's a chance we could see a continued sell-off.
The reality is, the company's growth is likely to remain somewhat modest, and potentially at rates that don't meet investors' expectations. The reality of its industry is that fleet operators are just slow to deploy new vehicles, and impatient investors are likely to keep the stock very volatile. Clean Energy is set to report fourth-quarter results on March 9, and if investors aren't pleased with the results, shares could continue to fall sharply. That's doubly true considering that one of its biggest customer groups is airport transportation fleets, and airport traffic is still down sharply.
What's an investor to do? I think patience will pay off, and a continued sell-off of this high-quality business could prove an opportunity to buy, at least for investors willing and able to buy and hold for years to come.
Too far too fast
These aren't necessarily bad companies, but their stocks have gone too high, too fast for investors to be sticking with them right now. And if the market crashed, these stocks could drop as well.
