Fuel cells generate electricity through an electrochemical reaction instead of burning fuel. While some fuel cells can use natural gas, biogas, or other fuels as input, cells that use hydrogen produce no emissions, with electricity and water as their only byproducts.
In addition to input fuels, fuel cells may differ in terms of their technologies. The fuel cells that Plug Power (PLUG -1.66%) and Bloom Energy (BE -1.13%) make vary based on their designs as well as target markets. Let's discuss which of the two companies looks like a better investment right now.
Hydrogen and fuel cells
Though hydrogen usually comes to mind first when anyone talks about fuel cells, fuel cells can also run on other fuels, such as natural gas or biogas. As an example, Bloom Energy produces solid oxide fuel cells, which are frequently fueled by natural gas. They don't require an expensive catalyst and operate at very high temperatures. These cells are typically used in stationary and backup power generation. Notably, Bloom Energy's design allows its cells to use hydrogen as fuel, but the company believes that high costs and restricted availability limit hydrogen's usefulness.
By comparison, Plug Power makes proton exchange membrane, or PEM, cells. These cells use an expensive catalyst, such as platinum. PEM cells can operate at lower temperatures and can start or stop quickly. These features make them suitable for use in transport applications such as forklifts and cars. Unlike Bloom Energy's cells, Plug Power's PEM cells run fully on hydrogen.
Interestingly, even though Plug Power is a well-known name in the fuel cell industry, the lesser-known Bloom Energy fares better than Plug Power on almost all financial metrics.
PLUG Revenue (TTM) data by YCharts
Bloom Energy generates higher revenue and narrower losses than Plug Power. In 2021, Plug Power racked up revenue of $502 million, while Bloom Energy's sales for the year stood at $972 million. Plug Power's higher losses are also reflected in its loss margins.
PLUG Profit Margin (Quarterly) data by YCharts
Plug Power generated negative margin of 119.2% last year, compared to -9.7% for Bloom Energy. Likewise, Bloom Energy is burning less cash than Plug Power. In the trailing 12 months, Bloom Energy spent $60.7 million on its operations, while Plug Power spent $358.2 million.
Which fuel cell stock is better?
When you look only at the charts above, it seems odd that Plug Power's stock trades at a much higher premium valuation than Bloom Energy.
PLUG PS Ratio data by YCharts
There are reasons for Plug's higher price-to-sales ratio. First, Plug Power is already experienced in deploying hydrogen fuel cells, while Bloom Energy is just starting in the hydrogen segment. With no harmful emissions, hydrogen fuel cells are truly clean and more desirable than cells running on natural gas in the long term.
Image source: Plug Power.
The second reason for Plug Power's higher valuation could be the immense potential for fuel cells in electric vehicles. But Plug's potential seems to be overestimated. Two of the leading manufacturers of fuel cell electric vehicles (FCEVs) -- Toyota and Hyundai -- make their own cells for use in their vehicles. This highlights the significant competition for Plug Power in the transport segment.
Plug Power's difficulties are also reflected in the company's recurring losses. Even in its traditional materials handling segment -- where it provides fuel cells for use mainly in forklifts -- Plug Power isn't profitable. Looking at these limitations, Plug Power is working to expand its target market. As an example, the company is now targeting the stationary power market. How successful it can become in these newer markets remains to be seen.
Overall, looking at Plug Power's financial performance, intense competition in the fuel cell market, and the uncertain pace of fuel cell adoption, its stock is trading at a valuation it hasn't earned yet. By comparison, Bloom Energy's practical approach toward providing cleaner yet cost-effective solutions looks better. Moreover, Bloom Energy stock is trading at a far more attractive price-to-sales multiple. In short, Bloom Energy stock looks like a better buy than Plug Power right now.
