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Why Plug Power, Enphase Energy, and Bloom Energy Stocks Dropped Today

By Howard Smith - Mar 5, 2021 at 12:13PM

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Renewable energy technology names are among the hardest hit in the ongoing market rotation.

What happened

Stock investors have been rotating out of high-flying technology stocks recently, anticipating a recovery in other businesses that were hardest hit by pandemic restrictions. Alternative energy names continue to be sold today, including Plug Power (PLUG 2.02%), Enphase Energy (ENPH -1.14%), and Bloom Energy (BE -0.17%)

As of noon EST Friday, shares of Plug Power were down 12.1%, and Enphase and Bloom Energy were down 11.1% and 10%, respectively.

So what

There's good reason for these names to experience a correction in share price. In just the past 12 months, the stocks of Plug, Enphase, and Bloom Energy are up 656%, 151%, and 140%, respectively. That in itself isn't a reason for the stocks to go down, but the valuations have gotten excessive, and Plug Power and Bloom Energy are not even profitable at this point. 

Hand turns dice over from saying fossil energy to green energy

Image source: Getty Images.

Now what

The green energy technology sector has been growing, and these businesses have benefited. As Enphase has expanded its solar power technology offerings, its revenue has grown 145% since 2018, and gross margins have expanded from 29.9% to 44.7% in that time period. 

Plug Power has recently announced several strategic business arrangements with potential partners in new areas. It recently closed a deal with SK Group. A $1.6 billion investment will give the South Korean company a 9.6% stake in Plug Power. The companies also plan to form a joint venture (JV) to grow hydrogen fuel solutions in Asia. The JV will establish a fuel cell factory and accelerate the expansion into Asian markets including China. The hydrogen fuel cell maker also plans to form a JV with French automaker Renault. Their intention is to create a joint venture to integrate hydrogen fuel cells into the European market for light commercial vehicles. 

But neither Plug Power nor Bloom Energy is profitable. Both companies reported continued net losses in recent fourth-quarter 2020 earning reports, but they also had encouraging messages for investors. Bloom CEO K.R. Sridhar said the company remains well positioned to continue to "solve critical energy problems like resiliency, reducing carbon emissions and costs." Plug Power management said it believes it is on track to meet recently raised business expectations for both 2021 and 2024. It also plans to build North America's largest green hydrogen plant, in western New York. 

There is much potential with these technologies, but the stock's valuations have soared, as previously mentioned. Plug Power still has a market capitalization above $20 billion, even after the recent downtrend. 

These types of alternative energy names typically do well when oil is rising, as it is today. But that thinking isn't overcoming the outsize valuations investors have given to the companies. It's likely that there will be more to come as the sector rotation continues.

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Stocks Mentioned

Plug Power Inc. Stock Quote
Plug Power Inc.
PLUG
$18.23 (2.02%) $0.36
Enphase Energy, Inc. Stock Quote
Enphase Energy, Inc.
ENPH
$198.39 (-1.14%) $-2.28
Bloom Energy Corporation Stock Quote
Bloom Energy Corporation
BE
$18.08 (-0.17%) $0.03

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

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