Shares of hydrogen companies had an incredible week as investors dove back into higher-risk assets and some strange trading dynamics hit the market early in the week. On top of the strange trading, a $1.7 billion conditional loan guarantee is helping the industry.
According to data provided by S&P Global Market Intelligence, shares of Plug Power (PLUG +0.18%) were up as much as 32%, FuelCell Energy (FCEL +1.53%) was up 21.4%, and Bloom Energy (BE +4.10%) rose 9.9% at its peak. The three stocks were up 30.1%, 19.6%, and 9.6%, respectively, as of 1 p.m. ET on Friday afternoon.
NASDAQ: PLUG
Key Data Points
The squeeze in hydrogen stocks
At least part of the move this week was because of a short squeeze in stocks. On Monday, Reddit personality Roaring Kitty made a return and caused traders to speculate there could be short squeezes in some stocks. That caused dozens of stocks to have major moves higher, and as highly shorted stocks, Plug Power, FuelCell Energy, and Bloom Energy were some of the beneficiaries of that speculation.
PLUG Percent of Float Short data by YCharts
It didn't hurt that interest rates have also been on the decline, which makes it easier to finance projects over the course of decades, which utilities will ultimately do.
10 Year Treasury Rate data by YCharts
But the biggest news came out of the Department of Energy.
Plug Power's $1.7 billion deal
On Wednesday, Plug Power announced a $1.7 billion conditional loan guarantee for six hydrogen facilities across the country. This will help the company and buyers get better financing deals in a structure that's been used for years in renewable energy.
The government standing behind hydrogen is a positive for the industry, but it doesn't mean these companies will be profitable. If you look at the long-term net income chart, history tells us even sales growth doesn't translate to better earnings.
PLUG Net Income (TTM) data by YCharts
Projects may be able to be financed with the help of the government, but unless equipment can be sold at a profit and products can be produced economically, it doesn't really matter how many guarantees these companies get.
I'm skeptical that any loan guarantee will result in profits in the hydrogen space.
Are hydrogen stocks a buy now?
After the recent run-up, I think now is the time to get out of hydrogen stocks. Shares are bouncing off their recent lows, despite any real fundamental change in their fortunes. Each of these companies is having trouble making money, and there's nothing about this week's news that will change that.
I think the challenge for each will be continuing to fund operations that have been so unprofitable for so long. Hydrogen is a great idea, but it lacks adoption in the vehicle market, long-haul trucking, and even utility-scale projects. That makes it difficult to build a business at scale, which is ultimately what they need to do. And without that scale and a sign of profits, I'm selling hydrogen stocks.
