As mentioned in a previous article, Clean Energy Fuels (CLNE) and Westport Innovations (WPRT) seemed over-extended and ready to correct. CLNE disappointed on their first quarter earnings despite a 13% jump in overall revenue and a 23% year-over-year rise in fuel gallons delivered. Net losses were significantly higher compared to the prior year quarter as well. This was driven by accounting adjustments and higher SG&A expenses. Study all about them on their own "press room" page.
Westport Innovations, like CLNE, is a very exciting story based on the idea that they say they are "...the global leader in natural gas engines." For the first quarter 2012, the big headline was that revenues were up 133% year-over-year. CEO David Demers used the quarterly announcements to help generate a positive media event. Straight off the company's media page comes these words:
"The numbers are compelling," said David Demers, CEO of Westport Innovations. "Compared to the same period last year; Westport Light-Duty revenue was up 258%, Cummins Westport revenue was up 110%, Westport Heavy-Duty revenue was up 65%, and Weichai Westport revenue was up 49%. Customer interest is expanding rapidly, and we see an array of potential investment opportunities with our global partners. Adding to our financial growth, we expect to announce new partnerships in each of our business units this year.
Mr. Demers went on to say:
We are at the start of a long wave [italics added] of change in both energy and transportation and we believe Westport is well positioned to establish a leading position in this new industry.
That's part of my concern with WPRT, CLNE and Cheniere Energy (LNG). This is just the beginning of a slowly evolving transition where liquid natural gas can someday become the cleanest, most cost-effective and readily available transportation fuel. For companies like WPRT, that "someday" isn't here yet, even though they have a viable business model and an exciting industry. When you look at their key financial statistics, like the Price/Sales ratio of nearly 5 and a negative PEG ratio (5-year expected), I realize that WPRT is mostly an overpriced speculation at the present time. Show me a company with as much debt as their total cash and no real net earnings, and I'll show you a financial disappointment waiting to happen.
In that same way CLNE reminds me a lot of WPRT. Once again their key financial statistics looks like it was formed from the same blueprint. Does CLNE deserve a $1.42 billion market cap when it had no quarterly earnings growth and more debt than total cash? Is WPRT really worth a $1.21 billion market cap? I think not.
Remember what has happened to companies like Chesapeake Energy (CHK) Encana (ECA) and Sandridge Energy (SD)? These were once the high-fliers in the natural gas space, were making boat-loads of cash and had impressive quarterly earnings. Of course that was before the price of natural gas plumbed the depths of new lows.
May I also mention Cheniere Energy? They were recently upgraded from a sell to a hold for reasons listed here. Once again, their key financial numbers such as their operating margin, their quarterly revenue growth, their EPS and their trailing-twelve-month operating cash flow all look like "goose eggs" to me. LNG has massive amounts of debt (almost $2.7 billion) and their book value per share is a minus 64 cents. At some point, the hype and hope about CLNE, WPRT and LNG may turn into doubts and trepidation. If and when that happens, their shares will fall to their true, speculative level. I can't be sure when, but I'm confident it's inevitable. Then and only then will I be interested in being a buyer.
Unless you can afford to speculate, why not wait until these companies turn the corner of profitability and show us the positive earnings-per-share before we buy into their enthusiastic growth stories?