The hydrogen business has long been of interest to investors because it has the potential to provide everything from fuel to vehicles to power to the electric grid. But it's been hard to build a sustainable business on hydrogen's potential.
Despite a slow start, there are starting to be some sizable projects built to expand hydrogen usage, and investors interested in this disruptive technology should take notice. Leaders in the industry include Plug Power (PLUG 1.26%), Bloom Energy (BE 10.99%), and Ballard Power Systems (BLDP 5.26%), but there's only one of these companies I would buy today.
The hydrogen business we see today
There's beginning to be a real business in the hydrogen industry, but not all companies are created equal. Technology is a big differentiator, with Bloom Energy using a solid oxide fuel cell that runs hot but is far more efficient than the proton exchange membrane technology that Plug and Ballard use.
This difference affects the cost to run fuel cells and ultimately the margins these companies can generate. End customers don't particularly care about the underlying technology; they want efficient electricity from the fuel cell.
You can see that Bloom Energy generates by far the most revenue, with Ballard coming in third among these stocks.
BE Revenue (TTM) data by YCharts
Where the numbers get really wild is when we look at operating margins. None of the companies is making money, but Plug is losing $1 on each $1 of revenue and Ballard is losing $2 per dollar in revenue. That's simply unsustainable long-term.
BE Operating Margin (TTM) data by YCharts
The troubling thing for all three companies is these are the margins after well over a decade in business. And there's not much momentum improving margins over the past few years, despite increasing revenue.
Future growth drivers
A decade ago, the argument could be made that hydrogen would be a valuable source of transportation fuel and may be used for energy backup and other energy uses. Today, batteries have won the transportation market, and even semi-trucks are trending toward batteries over hydrogen.
That leaves larger use cases or more niche businesses as the markets hydrogen can grow into. Plug and Ballard have grown up on materials-handling vehicles (forklifts, for example) and other small applications, but Bloom Energy has always been focused on utility-scale and commercial building backup.
That's why we see better financial figures from Bloom, and if hydrogen's future is in electrolyzer and energy backup systems, that should give Bloom a big advantage.
Value still matters
Bloom's business is stronger, the end markets are more viable, and it's the cheapest stock of the three by several measures. Until recently, it had the lowest enterprise value-to-sales ratio and is still the closest to profitability.
BE EV to Revenues data by YCharts
Hydrogen is still a high-risk market, but Bloom is in the right business with the right technology. Plug and Ballard haven't shown they can get close to profitability despite plenty of growth.
That's why Bloom Energy is the only hydrogen stock to own today, and I would avoid the other two.
