Beware! 3 Hydrogen Stocks Waving Massive Red Flags Right Now.
Hydrogen stocks have been hyped as the future of clean energy over the years, but they have faced some serious challenges in 2023. This has led to the emergence of hydrogen stocks to sell.
One of the main reasons is the relatively low oil and natural gas prices, which have reduced the demand and profitability of hydrogen fuel cells. “Green” hydrogen energy, which is derived from the electrolysis of water, is still more expensive and less efficient than fossil fuels, and it requires a lot of infrastructure and investment to scale up. As a result, many hydrogen stocks have seen their share prices plummet this year, and some are still waving massive red flags.
Here are three hydrogen stocks to sell investors should steer clear of in 2023.
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FuelCell Energy (FCEL)
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FuelCell Energy (NASDAQ:FCEL) is a hydrogen fuel cell company that focuses on developing stationary power generation for commercial and industrial customers. Despite revenue expanding 134% YoY, the fuel cell company also reported a net loss of $35 million in the second quarter of 2023, slightly higher than the loss in the same period last year. Unfortunately, the jump in top-line growth was due to existing partnerships, rather than FuelCell acquiring new customers.
Moreover, FuelCell Energy’s backlog also dropped, Backlog represents the amount of future revenue safeguarded by signed, long-term power purchase agreements (PPAs). In the second quarter, the backlog decreased by 23%, which does not bode well for the company’s short-term prospects. The decline in backlog speaks to what was written above about green hydrogen being less competitive these days due to relatively lower oil and gas prices compared to last year. This makes it one of those hydrogen stocks to sell.
The hydrogen fuel cell company’s shares have dropped 57.9% year-to-date, and without a revitalization of the hydrogen market, I believe shares are likely to continue their trend downward. Investor beware.
Plug Power (PLUG)
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Plug Power (NASDAQ:PLUG) is another hydrogen fuel cell company I have written about in the past. This company happens to be the largest and most well-known in the still very nascent hydrogen industry. These qualities had attracted me to the stock in the first place. However, share performance in 2023 has remained disappointing.
The company reported a net loss of $236 million in the second quarter of 2023. This net loss expanded by 37.2% from last year’s total losses. Enlarged losses and discouraging long-term revenue guidance ultimately make Plug Power a tough sell. Additionally, the high-interest rate environment has not been too kind to equities in general, especially those featuring lofty valuations. Plug Power’s shares are expensive on both an EBITDA and P/E multiple perspective, both of which are a direct result of the fuel cell company not being profitable.
Since the start of trading this year, Plug Power’s stock price has dropped 34.1%, and it does not seem to have a clear path to recovery with an expensive valuation and tough growth prospects.
ITM Power (ITMPF)
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ITM Power (OTCMKTS:ITMPF) is a U.K.-based hydrogen energy company that produces fuel cells and electrolyzers for various sectors, such as mobility, industry, and power. Similar to the entries that came before, sluggish revenue growth and larger net losses have plagued ITM and its share. However, unlike the hydrogen stocks above, this company finds itself on worse footing because it is still essentially “pre-revenue.” In their fiscal year 2022, ITM Power only generated $6.6 million in revenue, a 7.1% decline from the 2022 figure.
While revenue stagnated year-over-year, costs managed to climb upward, pushing operating losses to record lows. ITM reported an EBITDA loss of $120.7 million. which represented a 126.7% YoY increase in losses. ITM Power’s stock price has fallen by more than 16% year to date, and while the company operates in a new and compelling space, ITM does not seem to have a profitable or scalable business proposition.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
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