- Long-term fundamentals are strong and support bullish outlook
- The recent spike following Biden’s clean energy transition plans has exhausted, pointing to a short-term downside
- Investors might look back into the stock if the company finally reaches profitability in 2021 as forecasted
Bloom Energy (NYSE:BE) is an interesting, quite controversial stock. The company has invested over $1.7 billion and never made a profit during its 20 years of existence. Still, the stock has rallied about 363% over the past 12 months riding the hype surrounding Biden’s announcements on expanding the clean energy transition. In fact, most major hydrogen fuel cell stocks got a boost. In the short-term, I think the stock is a selling opportunity, based on fundamentals and technical signals. Long-term, though, I’m bullish.
Company Overview
Bloom Energy Servers At Ebay HQ. Source: Bloom Energy Flickr
Bloom Energy’s business is centered around the solid oxide fuel cells technology. The company is producing an advanced energy system that is available 24/7. It’s main selling point is that it is effective as back-up energy generation during power outages. The company is innovative in its approach to use hydrogen as a fuel to power its solid oxide fuel cells. It also has decided to produce the hydrogen within the company using renewable electricity and solid oxide electrolyzers. In fact, Bloom has won 19 patents for its solid oxide electrolyser technology.
The company’s main product is the Bloom Energy Servers. The server modules are highly customizable as they can be stacked together in different configurations to meet each business’s individual energy needs. The Servers are also highly efficient, around 50% or up to 65% for brand new ones. Efficiency has been increasing throughout the years and that trend is expected to continue.
In June 2019, the company announced it’s making a strategic change of direction and will start running the solid oxide fuel cells on hydrogen. Last summer it also claimed that it wants to produce the hydrogen fuel in house together with electrolyzers in order to make the hydrogen green. The share price has tripled since the company said they are changing to zero carbon hydrogen.
Making the electrolyzers itself will provide the company the opportunity to bring down their cost. It is able to use renewable energy to produce the green hydrogen which will complete the cycle of 100% sustainable energy generation. If Bloom starts making electricity per kWh competitive with the cost of electricity from the grid, it will open a trillion-dollar market. Investors will be looking for signals if the company can do that, and faster than its competitors.
Long-Term Upside Potential
Source: www.gminsights.com
As the world is coming to the conclusion there isn’t just one safe-haven clean energy source, we are seeing a spike in a variety of different green energy technologies with potential to solve the various problems that need to be addressed for curbing climate change. There is a hype around hydrogen technology right now and it’s getting more attention from the media and the market than ever before. As the interest in green hydrogen is also rising around the world, I believe Bloom is well-positioned to gain a share of a projected growing market.
Even though Q4 2020 and yearly financial results were negative, they still beat expectations and are the best ones reported so far. The CEO K.R. Sridhar described 2020 as the company’s “best year yet.” The leading highlight from the quarterly report is the increased profitability projection. The CFO Greg Cameron said: “…we are projecting to achieve profitability for the year 2021,” or they upgraded their forecast to break even and be in the black. Once the company makes a profit, investors’ interest might return, given that the continued reported losses are one of the main reasons why the stock retreated from the $44.95 top.
Source: www.pixabay.com
Importance Of Reliable Electricity
Bloom Energy also made an announcement in April 2021 that it signed a series of agreements for the deployment of more than 40 megawatts of fuel cell production in the Northeast. The agreements are part of the Community Distributed Generation (CDG) program developed in New York to allow citizens and businesses better access to renewable energy electricity. Bloom Energy technology can relieve the stress on the electric grid in the New York region as it is prone to outages, because of a high population per square mile and aging infrastructure.
The technology can potentially be used by energy companies like Consolidated Edison (NYSE: ED), seeking to limit power outage effects. Along with better grid security, the company is also projected to achieve a reduction of 50,000 metric tons of CO2 each year in the New York area. The newly added projects the company has won, prove it is able to provide both businesses and residential customers with a more reliable always-on power generation.
The Texas power crisis is an example of how important reliable electricity is. People were left freezing from no power in the biggest fossil-fuel producing state which is an irony. It shows the urgency of a rapid update in the energy infrastructure with more advanced technologies. Bloom’s fuel cells famous for providing always-on electricity could prevent such devastating for the community power outages. With the Biden administration’s commitment to modernize and decarbonize the country’s power grid and transportation sector, Bloom Energy’s opportunities are looking bright and vast.
Since hydrogen fuel cells can power pretty much anything – from small personal electronics to airplanes, the scope for business growth is numberless. Bloom Energy and Samsung Heavy Industries announced in June 2020 that they plan to make a renewable hydrogen-powered ship. They aim to actually make shipping zero carbon. And if the technology becomes price competitive, it is expected to change every aspect of the energy industry.
Technical Analysis
Source: www.tradingview.com
Bloom Energy’s weekly chart shows a selling opportunity ahead in the near term. The trend is up since March 2020, but the recent top it made in February didn’t manage to hold. The spike was supported by the Biden administration’s plans to make the US a 100% clean energy economy with net-zero emissions by 2050. Biden pledged sweeping investments in green energy and infrastructure and the calls increased since his inauguration day at the beginning of January. That caused the stock to mark an all-time high at $44,95 on Feb 8th 2021. Since then, it’s been retreating close to $22,73 as investors also need to see profits to keep their interest.
There is also a head and shoulders formation on the weekly chart. The price closed below the neckline on April 5th – a clear selling signal. Based on that, I expect the price to drop further from current levels, with a support zone between $19 and $12.50. The $19 level is also around the upper trendline that has formed since March last year. The $12.50 is a strong level that managed to hold the price from dropping at least three times in the past year. The dip that I expect the stock to reach around the $19 – $12.50 area seems like a buying opportunity.
There are also fundamentals supporting a short-term downside.
Bloom Energy posted a loss of $158 million for 2020 which made investors nervous after 20 years of consecutive negative net profit results. There was a news that came out recently that also darkened Bloom’s future outlook. SK Group – one of the biggest clients of Bloom Energy has decided to invest $1.5 billion in Plug Power (NASDAQ:PLUG), Bloom’s largest rival. SK Group becoming one of the largest stakeholders in PLUG was seen as an indication of who the company trusts will become a bigger player in the hydrogen market.
Conclusion
Even though SK Group is diversifying its hydrogen fuel cell market exposure, the future for Bloom Energy is still bright with the world building its growing energy needs on the hydrogen economy. The opportunity is big enough for both players to keep growing their revenues and net gains.
For the time being, investors will be looking for hints on rising profitability from the quarterly results. Bloom Energy will release its Q1 fiscal year 2021 financial report on May 5, 2021 after market close. If the current course of decreasing negative results is kept, investors will likely add to their positions. Short-term bearish potential might be limited to around $12.50 but long-term, the stock is an attractive investment possibility.
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