Is There Any Value In The Fuel Cell Sector?

Includes: BLDP, FCEL, PLUG
by: George Kesarios

Several years ago I was looking at the several companies in the fuel cell sector. While I thought the concept and the idea of a fuel cell was great, the valuation of the stocks in sector at the time were simply ludicrous.

Even if the technology proved to be a commercial success, the valuation of the stocks were so far ahead of the fundamentals, that it made no sense buying them back then. I mean the sector was so ridiculously overvalued, it puts today's SaaS sector to shame.

And just to give you an idea of how grossly overvalued these stocks were at one point, please note the chart below at three of the stocks I was following back then.

Adjusted for reverse splits, Plug Power (NASDAQ:PLUG) traded as high as $1,600, with Friday's close finding the stock at $2.61. Ballard Power Systems (NASDAQ:BLDP) traded as high as $150 and today is trading at $1.86, and FuelCell Energy (NASDAQ:FCEL) was once over $50 and today the stock is worth $1.69.

Simply put, anyone who bought these stocks and held onto them, more or less has seen their investment go to almost zero.

Do these companies have any value today? Should investors give them a second chance? Let's see.

Plug Power trades at a Price/Sales ratio of 10, with no profits and a P/B ratio of over 100. The company's profit margin is -172%, its operating margin -123% and its return on assets stands at -44%, with return on equity a whopping -300%.

Ballard Power Systems also has no profits (and none are expected in the future either) and its profit margin is -60%, operating margin -37%, with return on equity at -60%, but trades at a reasonable P/B of 3 and Price/Sales of 2.9.

FuelCell Energy is also losing money, with negative operating and profit margins to the tune of 16% and 18% respectively, and with a return on equity of -58%.

All three companies are hemorrhaging cash and all have negative operating cash flows. The question is, how have these companies survived all these years? For example, Fuel Cell currently has a market cap of about $331 million with $761 million in negative retained earnings. The answer is that they have been selling stock:

PLUG Shares Outstanding Chart

PLUG Shares Outstanding data by YCharts

FCEL Shares Outstanding Chart

FCEL Shares Outstanding data by YCharts

BLDP Shares Outstanding Chart

BLDP Shares Outstanding data by YCharts

Please note this article is not a technology review nor am I taking into account any recent catalysts that these stocks might have that might be the reason for their recent rally. There are many other writers that have done a good job analyzing the technology, and I highly advise you read their pieces here on S.A. and make up your minds about the technology and its prospects.

However, while there are many articles that review the technology of these companies, very few analyze the valuation of the stocks, the quality of the balance sheet and the profit potential of the stocks themselves.

My suggestion is be very careful when dipping into these stocks. Be aware that these companies might continue to lose money and might continue to issue stock to survive. And if you do decide to trade them, please take into consideration what all this means, because if these companies do not become profitable and you hold on to them, another decade might pass and your investment might go to zero and you will be wondering what happened.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.