Please ensure Javascript is enabled for purposes of website accessibility

Why Clean Energy Fuels Tumbled 20% in April

By Jason Hawthorne - May 6, 2021 at 5:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After a wild swing, investors finally settled on a thumbs down for a big deal.

What happened

Clean Energy Fuels (CLNE 4.52%) fell 19.9% in April according to S&P Global Market Intelligence. The stock was already slipping early in the month, but fell sharply after the company announced a deal to supply Amazon (AMZN 0.14%) with low- and negative-carbon renewable natural gas (RNG). That drop came after the news initially propelled shares as much as 25% higher.

A big rig at one of the company's natural gas fueling stations.

Image source: Clean Energy Fuels.

So what

Clean Energy operates more than 550 stations providing liquid and compressed natural gas for fleets across North America. Landing Amazon as a customer is a big deal, so you would think the stock would rally. The fly in the ointment is the warrant the company issued to the retail and internet giant. 

Per the agreement, the company gave Amazon the option to purchase as many as 53 million newly issued shares. That would dilute current shareholders by 26%. Nearly 13.3 million vest immediately. The remaining will vest over time based on fuel purchases up to $500 million.

Now what

For existing shareholders, the upside of a relationship with Amazon seems to outweigh the worries over dilution. First, the remaining warrants can be exercised until April 2031. That's a long time for any vesting to play out. Second, the exercise price is $13.49, nearly 40% above the current price. Shareholders should be happy if it ends up being worth it to Amazon to convert its warrant to shares. Finally, Clean Energy booked about $252 million in product revenue over the 12 months ended March 2021. That means if the full dilution does occur, it would be attached to an enormous increase in sales.

Many are skeptical that goal will ever be reached. Amazon has pledged to purchase 100,000 custom electric delivery vehicles as part of its Climate Pledge. It's likely the deal with Clean Energy is just about keeping options open. With hindsight, the entire episode may turn out to be much ado about nothing.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Clean Energy Fuels and recommends the following options: long January 2022 $1920.0 calls on Amazon and short January 2022 $1940.0 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$142.30 (0.14%) $0.20
Clean Energy Fuels Corp. Stock Quote
Clean Energy Fuels Corp.
CLNE
$7.86 (4.52%) $0.34

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.