Do fuel cell stocks have much energy left?

Chris Lau, Kapitall: Will the growth of alternative energy investments spill over to fuel cell stocks?

Fuel cell stocks tear upwards whenever a deal is announced or an acquisition takes place. Others in this sector are less fortunate. Wild volatility greets companies like Ballard Power Systems (BLDP). As long as the positive momentum for the sector continues, it’s anyone’s guess as to when valuations lead these stocks downward.

Plug Power makes acquisition

Plug Power (PLUG) acquired ReliOn, paying for the acquisition entirely in stocks. Plug will pay around $4 million for the hydrogen fuel cell stack technology company. Plug is interested in ReliOn because the latter’s solutions are sold to AT&T (T), Verizon (VZ), and Sprint (S).

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The deal diversifies Plug’s fuel cell solutions into distributive backup power. Investors clearly liked the deal, because shares traded well above the $6 lows reached in March, 2014. However, there is still upside, as the stock is also trading below its 52-week high.

Plug shares are valued at a price-to-sales ratio (PE) of around 42 and a price-to-book ration (PB) of over 200. Conversely, Ballard Power is valued at a PE of 7.81 and a PB of 7.46.

Conclusion

There is a growth market for alternative energy. If applying hydrogen Fuel Cell solutions in delivery trucks costs less than say, diesel fueled solutions, and then demand for fuel cells will increase. For now, projects implementing this technology will need to weigh the risks associated with trucks having a lower range of travel. If the scalability of fuel cells is there, then the lofty valuation in companies like Plug Power would be justified. Bears appear to disagree: short float for these companies is above 10 percent.

Do you think fuel cell stocks will outperform? Use the links below to start your own research.

1. Ballard Power Systems Inc. ( BLDP): Engages in the design, development, manufacture, sale, and service of fuel cell products for motive and stationary power markets primarily in the United States, Canada, the United Kingdom, and Germany. Market cap at $280.21M, most recent closing price at $2.82.

 

2. Plug Power Inc. ( PLUG): an alternative energy technology provider, is engaged in the design, development, manufacture, and commercialization of fuel cell systems for the industrial off-road markets worldwide. Market cap at $310.52M, most recent closing price at $3.69.

(Written by Chris Lau, a Kapitall contributor. All data sourced from Zacks Investment Research.)

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