What to make of Ballard Power (Ballard Power Stock Quote, Chart, News, Analysts, Financials TSX:BLDP)?
The fuel cell stock went through the roof in 2020 and keeps rising, yet revenue is growing at a snail’s pace and quarterly losses keep piling up. That should be a big red flag for investors, says Brian Madden of Goodreid Investment Counsel, who says Ballard has no business being valued like it currently is.
“This is a polarizing one. I will say that if you like Tesla, then you’ve got to like Ballard Power. They’re de facto the same trade over the last two years and they trade kind of in lockstep,” says Madden, senior vice president at Goodreid, who spoke on BNN Bloomberg on Thursday.
“Ballard is up about 960 per cent over those two years while Tesla is up 1100 per cent —yes, that’s 1,100. But we don’t like Tesla and we don’t like Ballard,” Madden said. “You know, this isn’t so much a stock as it is a science project.”
Vancouver-based Ballard Power, which makes hydrogen fuel cell stacks and systems for heavy transport vehicles, started popping over a year ago when it announced a $19.2-million order from its joint venture with Weichai Power, a supply agreement for membrane electrode assemblies and the continuation of a long-standing relationship between Ballard and the Chinese energy giant. Weichai took a 19.9-per-cent interest in Ballard in 2018 with a $163-million equity investment and the establishment of the JV for fuel cell research and development.
The fuel cell industry has been doing well lately. Clean tech has been part of the wider investment turn to renewable energy, one which many see as only accelerating as governments worldwide look to implement their climate change initiatives and green their economies.
In the US, wins by the Democrats both in November’s Presidential election and this week in the US Senate runoffs are being taken as good signs for the renewable energy sector, as well.
Last month, the Canadian federal government launched its Hydrogen Strategy which calls for $5 to $7 billion in near-term investment to put Canada’s hydrogen industry on the map. The government said it will begin with a $1.5-billion investment fund for low-carbon fuels including hydrogen.
“Energy is our family business in Canada, and this strategy shows us how to grow that business,” O’Regan said at a December 16 news conference. “Our first job is to let industry know we are serious.”
Ballard Power applauded the move, saying the strategy “represents a tremendous business opportunity for Canada’s leading hydrogen and fuel cell technology and energy companies.”
“We are excited by the ambitious framework laid out in the Hydrogen Strategy for Canada, which seeks to position Canada as a global hydrogen leader and support Canada’s path to net-zero carbon emissions by 2050,” said Randy MacEwen, Ballard President and CEO in a press release. “The strategy articulates a compelling vision for 2050, with up to 30% of Canada’s energy delivered in the form of hydrogen, an established supply base of low carbon intensity hydrogen delivered at competitive prices, over five million fuel cell electric vehicles on Canadian roads, and a nationwide hydrogen refuelling network.”
Meanwhile, US fuel cell company Plug Power announced this week a huge deal with South Korea-based conglomerate SK Group, which will be investing $1.5 billion in Plug Power for a 9.9-per-cent stake in the company. That sent Plug Power’s share price soaring but also boosted Ballard Power, which is up 22 per cent for the week.
But it’s Ballard’s track record that bothers Madden.
“Ballard is valued at $8 billion dollars. It has been around and publicly traded since 1994 and it has lost money in every single one of those years with losses mounting and escalating since about 2018,” Madden said.
“The reason why they’re able to do that and continue burning cash is because they’re backstopped by three or four Asian industrial firms. In some ways, you can think of this as an off-balance-sheet experiment in the way that some pharmaceutical companies like to keep high-risk research and development activities in an off-balance-sheet affiliate or subsidiary,” Madden said.
“Ballard’s sales even after 25, 26 years are still de minimis at about $120 million. I don’t know what the future holds for the electric vehicle market, but I think the stock has no business trading anywhere near it does based on the historic fundamentals or even the near-term forecasts,” Madden said. “Even with the rapid adoption of electric vehicles, this stock is not forecasted to earn any money this year, next year or the year after.”
“But hope springs eternal and analysts somehow expect it to turn a profit in 2024, but I would not buy this stock,” Madden said.