Bloom Energy (BE 10.99%) has been a leader in the hydrogen energy business for years, but it hasn't gotten nearly the attention of some of its more vocal rivals. Plug Power (PLUG 1.26%), in particular, was a market darling at a time when Bloom could barely get investors' attention.
That has changed recently as Bloom Energy slowly but surely grows revenue and gets closer to profitability.
Bloom Energy's steady progress
Most of Bloom Energy's sales are for fuel cells that go into commercial or utility-scale applications. The lead times are long and demands are high for the technology. So, this isn't a company that's going to grow revenue by 50% or more per year. It's a slow and steady march to progress -- and that's exactly what we see in the financials.
If it weren't for $130.1 million in impairment charges in the most recent quarter, the company would have seen margins increase again with non-GAAP gross margin at 31.6%.
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Operating expenses are even coming down, dropping $5 million in the most recent quarter to $98.5 million. That financial improvement should continue as competitors struggle and Bloom Energy's technology improves.
Crisis in the world of fuel cells
The long-term upside for Bloom Energy is in large-scale fuel cells and electrolyzers. The ability to create and consume hydrogen has long been a dream of industry backers.
Bloom Energy has been one of the biggest companies in this space, but it's also competed against proton exchange membrane (PEM) fuel cell producers like Plug Power and Ballard Power Systems, which have at times been more valuable than Bloom Energy.
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This has changed recently, though, as Plug Power has warned investors that it may no longer be a going concern. In other words, it isn't a sustainable company as currently constructed.
In the energy business, this could have a chilling effect on sales. Companies installing fuel cells and electrolyzers will want to know that their counterparty is viable and will be able to live up to warranty obligations and contracts for new equipment. Bloom Energy may now have an advantage over Plug Power in these large deals because it's a going concern.
The best stock in hydrogen
For investors looking at the emerging hydrogen market, I think Bloom Energy is the best stock available. The company isn't profitable yet, but revenue and margins are improving, and it has arguably the best technology in the industry.
I think the biggest upside for Bloom Energy is in electrolysis, which could be a huge market as energy companies look for ways to store volatile wind and solar electricity production with hydrogen. This "green" hydrogen can then be used later on the grid or even in fuel-cell-powered ships.
As much as this is a great growth opportunity, caution is needed. There's a lot to prove, and until Bloom Energy is generating positive free cash flow, this won't be a sustainable company without investor support. Plug Power is finding that out the hard way.
