Well that was quick! Just 24 hours after J.P. Morgan upgraded hydrogen fuel cell company Bloom Energy (BE 9.28%) stock on Wednesday, sending Bloom stock soaring 18% in a day, Bloom stock is turning tail and tumbling back down again.
Bloom stock fell 9% through 12:30 p.m. ET.
Image source: Getty Images.
Bloom's ups and downs
J.P. Morgan nearly doubled its target price yesterday, advising investors to buy Bloom stock on the theory that Congressional "48E tax credits" will encourage more companies to use Bloom's fuel cells, and boost profit margins for Bloom itself. Many investors liked the sound of that, bidding up Bloom stock strongly.
No sooner had this happened, though, than one Bloom investor decided to cash in on the stock price surge -- by selling half its shares. As confirmed in an SEC filing, SK ecoplant will sell 10 million Bloom shares for about $28.71 per share.
NYSE: BE
Key Data Points
Is Bloom stock a sell?
According to data from S&P Global Market Intelligence, SK is an insider investor in Bloom, owning just over 10% of the company's shares outstanding -- 23.5 million. Today's sale will cut that stake roughly in half, limiting SK's exposure should Bloom's stock price flag, and locking in profits from yesterday's big stock price surge.
This seems prudent to me. While J.P. Morgan may be optimistic about Bloom's future, the company reported less than $5 million in profit over the last 12 months, and its P/E ratio stretches well beyond 1,000x earnings. Bloom generates more free cash flow than it reports as net profit, but its price-to-free cash flow ratio is 87 times FCF, which seems pricey despite growth forecasts for 25% over the next five years.
There's good reason for SK to be selling -- and good reason for other investors to do likewise.
