What is Ballard Power’s stock really worth?

Hydrogen fuel cell maker Ballard Power (Ballard Power Stock Quote, Chart, News TSX:BLDP) has been on an insane run over the past 12 months but now’s not the time to be joining the party, says JC Clark Limited’s Colin Stewart, who warns investors that he’s seen this movie before and it doesn’t end well.

Fuel cell companies are leading the pack in 2020, with companies like Plug Power and Fuelcell Energy  sparking rallies in the new year off of positive energy surrounding the technology. And Vancouver-based Ballard has joined in on the action, climbing as high as $16.61 per share earlier this month before settling this past week into the $12 – $13 range. But even that’s impressive considering the stock was worth four bucks just 12 months ago.

Why all the fuss? In one sense, Ballard’s success is self-made in that it has been developing a partnership with global automotive equipment giant Weichai for a number of years now, while recently Ballard scored a potentially lucrative deal to provide fuel cell stacks for German radio tower sites.

But the lift to Ballard and other fuel cell stocks also has a lot to do with the macro trend towards clean energy, as countries around the world aim to make good on their promises to lower fossil fuel usage, with renewable energy vehicles being a prime focus.

Stewart on Ballard Power stock: “Ballard is still losing money but they are expected to become profitable in the next couple of years, but even on those profitability metrics I think it’s probably conservatively only worth half of what it’s trading [at]…”

“If you look globally, what you see is about 66 countries now defining a net zero emission pathway for 2050,” said Ballard CEO Randy MacEwen, speaking to BNN Bloomberg last week. “Today about 70 per cent of global GDPs are associated with countries that have put in place a hydrogen road map just in 2019, looking out to 2030 and 2050 and decarbonization.”

An example of this positive mojo for fuel cells of late is China’s announcement earlier this month that it will continue its subsidy plan for new energy vehicles. MacEwen said it’s that kind of news that spurs investment in fuel cell tech.

“I think there’s been some question about what’s the next policy stage for China in terms of adoption and supporting fuel cell and hydrogen technology, and we believe that there’s very strong governmental support that will lead to high growth in the very large, attractive China market,” MacEwen said.

All that may be well and good but Stewart said investors should look to Ballard’s history of ups and downs —and mostly downs, as the stock once registered in the $170 per share range two decades ago— to see how easily one can get burned if and when public interest in the technology’s potential starts to wane once more.

“Given the recent run-up in the stock, I wouldn’t advocate owning this,” says Stewart, CEO and portfolio manager at JC Clark, speaking to BNN Bloomberg on Monday. “We’ve seen Ballard have these moments before in the past. It’s a company that has obviously been around in Canada a long time, and we’ve seen excitement around hydrogen fuel cells and they’ll announce some contract and the stock will run up only to leave investors disappointed at the end of the day.”

Stewart said that while fuel cells may have a future, Ballard’s own runway could be a lot more limited.

“If you look at their market cap size relative to their revenue it doesn’t really make a lot of sense,” he says. “Ballard is still losing money but they are expected to become profitable in the next couple of years, but even on those profitability metrics I think it’s probably conservatively only worth half of what it’s trading [at].”

“I think it’s been partly a short squeeze, partly a run-up on speculation but not something that I would advocate the average investor trying to buy at this elevated price,” Stewart said.