In light of the electric starts to 2019 that both Ballard Power Systems (NASDAQ: BLDP) and Plug Power (NASDAQ: PLUG) have enjoyed, it seems reasonable to conclude that the two fuel-cell stocks have restored confidence in investors. Both companies have far outpaced the 16% rise that the S&P 500 has recognized year-to-date as of this writing: Ballard has climbed more than 44%, while Plug Power has skyrocketed more than 104%.
Their stocks' movements aside, both companies have found themselves in the news recently. Plug Power, for example, recently announced a partnership with a Taiwanese manufacturer of electrical solutions, thereby expanding its exposure to the stationary power market, while Ballard announced that it had signed a supply agreement with Norled, one of Norway's largest ferry and express boat operators, broadening its reach in the maritime market. The best choice for investors, however, hardly reflects which company finds itself more prominently in the headlines, so let's dig in deeper to see which one represents the best buying opportunity.
Image source: Getty Images.
Insight into the income
Comparing Ballard and Plug Power in terms of their sales and profitability is far from a simple task. Regarding the top line, Plug Power significantly outshines Ballard. Thanks in part to a blockbuster deal with Amazon and its lengthy partnership with Walmart, Plug Power has grown sales at a compound annual growth rate (CAGR) of 45.7% over the past five years, while Ballard's revenue has risen at a 9.5% CAGR. And the contrast, presumably, will be even greater following 2019 should the companies achieve their revenue guidance. Should Plug Power achieve the midpoint of its annual revenue guidance, it will represent year-over-year growth of 37.4%; conversely, Ballard, on its recent conference call, stated its expectation that revenue would be "relatively flat compared to 2018."
Consider the companies from the perspective of profitability, however, and it becomes apparent that Ballard has outperformed its fuel-cell peer in several areas.
|Company||5-Yr. Avg. Gross Profit||5-Yr. Avg. Gross Margin||5-Yr. Avg. Operating Income||5-Yr. Operating Margin||5-Yr. Avg. EBITDA||5-Yr. Avg. EBITDA Margin|
|Ballard Power Systems||$23.1 million||25.2%||($17.4) million||(23.8%)||($12.4) million||(15.4%)|
|Plug Power||($1.32) million||(2%)||($63.9) million||(58.5%)||($66.5) million||(67.6%)|
Data source: Morningstar; author's calculations.
Consistently generating a gross profit, Ballard appears to be better at keeping operating expenses in check than Plug Power.
Although Ballard's greater proximity to profitability is noteworthy, it fails to compensate for the sluggish top-line growth. Moreover, Plug Power has been making progress in controlling expenses. It reported positive-adjusted EBITDA for the first time in Q4 2018, and management expects similar gains in 2019, forecasting on its conference call that the company will be adjusted EBITDA-positive in 2019.
Winner: Plug Power
A matter of trust
Considering the two companies and their financials is definitely important, but it's also necessary to consider the degree to which we trust the companies. Although Plug Power's management has been overzealous in the past, forecasting profitability and coming up way short, it has taken steps recently to remedy its relationship with investors. For one, management is working to be more transparent with shareholders. Andy Marsh, Plug Power's CEO, availed himself to the public, holding "Ask Me Anything" sessions on Quora and Reddit. But improving the dialogue with investors isn't the only way in which the company hopes to restore trust. Marsh put his money where his mouth is and followed through on his announcement that he would adopt a 10b5-1 stock trading plan, buying 12,286 shares at an average price over $2.44 on the open market in a transaction totaling about $30,000.
Image source: Getty Images.
For Ballard, to put trust in the company is a more tenuous proposition. The company recognizes China as a significant growth opportunity, inking agreements with Weichai Power and Broad-Ocean Motor. But success in China is far from a certainty -- something that was extensively articulated in a critical report from Spruce Point Capital in early 2018. In fact, the report goes so far to say that "it still remains highly uncertain if China will develop the fuel cell vehicle market beyond an experimental phase." Since Spruce Point Capital had a short position in the stock, some skepticism regarding its report is warranted. The fact that Ballard reported lower-than-expected revenue in Q3 2018 due to its joint venture with Guangdong Synergy, however, and that it subsequently removed the value of this contract from its backlog certainly gives some credence to Spruce Point Capital's argument.
Winner: Plug Power
Is the price right?
Because profits and positive cash flow remain elusive for both companies, the traditional price-to-earnings and price-to-cash flow metrics serve little use. Therefore, we can consider the two stocks on their sales multiples. In doing so, we find that Plug Power represents a better proposition. Currently, the stock is trading at 3.13 times trailing sales, a more attractive option considering its five-year average multiple is 5.57. On the other hand, Ballard is more richly valued, as it trades at 6.64 times trailing sales, higher than its five-year average multiple of 4.83. And even though either stock might not seem like a bargain since the S&P 500's PS ratio is 1.87, Plug Power's valuation seems more justifiable considering the projected strong revenue growth.
Winner: Plug Power
The electric conclusion
In the showdown between these two fuel-cell stalwarts, it's clear that Plug Power represents the more compelling opportunity. Between its supercharged revenue growth and its progress toward a black-hued bottom line, Plug Power's financials eclipse those of the lackluster Ballard. Moreover, Plug Power's interest in fortifying its relationship with shareholders is commendable and deserves recognition. As for the more attractive price tag? That's icing on the cake.
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