"But we're huge in China." One of these days, tiny fuel-cell pioneer Ballard Power Systems (NASDAQ:BLDP) is going to have to make that its official corporate motto.
With only $57 million in trailing revenues, no profit earned in the past six years, and no free cash flow generated in the last... 22 years (!), Ballard is still very much a work in progress. But over the past few days, Ballard has done its level best to convince investors that "progress" is being made.
Big in China
Bracketing the weekend, Ballard Power issued two press releases on Friday and Monday, describing what are, for Ballard, pretty significant sales of fuel-cell powered transportation systems in China. In Friday's announcement, Ballard confirmed that over the next couple of years, it will work with partner Guangdong Synergy Hydrogen Power Technology Co. to begin supplying about 300 "fuel cell buses" in the cities of Foshan and Yunfu, China.
One business day later, Ballard was back on the newswires with another announcement related to Foshan. The company is partnering with CRRC Qingdao Sifang Company to roll out eight electric trams powered by "customized FCvelocity modules." Ballard will supply 10 modules to power the trams. Presumably, two of the modules are spares, but it's also possible that Ballard is planning a rapid ramp-up in the collaboration, because it described the deal as being an "initial deployment" and having an "initial value" of $6 million.
Combined with Friday's $17 million fuel-cell bus contract, that makes for $23 million in new revenues for Ballard announced over the past two business days -- 40% of annual revenues at Ballard, according to data from S&P Capital IQ -- and all coming from China.
Optimism sparks, then fades
Investors reacted positively to Ballard's twin news announcements -- at least initially. Ballard shares climbed 4% in Monday trading, on the first trading day after the bus contract was announced. By Tuesday, though, Ballard shares had given back all of those gains and more, and were trading back below their value before the news was announced. (Indeed, at a closing price of $1.13 Tuesday, the shares were trading at levels last seen in mid-2013.)
So, who had it right, the folks who bought Ballard on news of the sizable influx of new revenues from China, or those who sold the shares off immediately afterward?
Call me a pessimist if you want, but I'm in the latter camp. Here's why.
The trouble with Ballard
Over the past 10 years, Ballard Power's revenues have waxed and waned from year to year, but generally speaking, they've never exceeded $70 million annually. And no matter how many fuel cell systems the company has managed to sell, its gross margins have never exceeded 27% or so, nor resulted in any profit on either the operating or net level.
Indeed, go back another couple of years, and the most revenue Ballard has ever recorded this century was in 2003, when the company came close to booking $120 million in sales (more than twice the business done last year). Yet even then, gross margin maxed out at just 36.4%, while operating and net profit margin was in the negative triple digits. (For that matter, profit margin in that banner sales year of 2003 was more than twice as bad as it was last year, on less than half the sales level seen in 2003.)
Simply put, throughout its history as a publicly traded company, Ballard has shown itself incapable of earning a profit -- no matter how much it sells. Indeed, it almost seems that the more Ballard sells, the more money it loses on each sale.
When you look at the company's track record in that light, maybe investors were right to sell Ballard on news of accelerating sales. Judging from its record, that could mean the company's losses will only grow all the faster.