In the stock market, a good story can go a long way. Just look at Ballard Power Systems Inc BLDP-T.
For nearly three decades, the Burnaby, B.C.-based maker of hydrogen fuel cells has attracted investors with the potential of a breakthrough that never seems to materialize.
Once again, hydrogen fuel is having a moment, as Europe’s energy crisis and U.S. President Joe Biden’s climate agenda have given new urgency to the commercialization of clean energy sources. Hydrogen plays have caught a bid as a result, with Ballard’s shares gaining 22 per cent over the past month.
Since going public in 1993, Ballard’s stock has undergone countless run-ups like this one. None of them have translated into actual profits.
“It’s actually impressive,” said Jason Mann, chief investment officer at Toronto-based EdgeHill Partners, which has a short position on the stock. “Ballard has been able to not make money since 1993, and they’re still around with a pretty sizable market cap.”
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Ballard’s operating losses dating back to its IPO total about US$1.5-billion. Just once in its history of nearly 120 quarterly financial results has the company generated an operating profit – about US$150,000 in the final quarter of 2016.
In its most recent earnings call with analysts earlier this month, Ballard executives discussed how the company missed analysts’ forecasts while also reporting gross margins that sank further into negative territory – the result of rising costs due to inflation as well as discounts on pricing given to customers.
“We need to further assess the competitive implications of the negative gross margin, which is clearly not sustainable,” Raymond James analyst Michael Glen wrote in a research note.
The company said it expects to see its margins expand after this year as the market opportunity of hydrogen continues to evolve.
“We have high conviction in the long-term opportunities for hydrogen and fuel cells, and are encouraged by the growing importance governments and customers across the globe are placing on the acceleration of the energy transition,” Ballard chief executive Randall MacEwen said on the earnings call.
Russia’s invasion of Ukraine has underscored the risks of Europe’s dependency on Russian natural gas. Facing the possibility of gas rations this winter, Germany for example, is scrambling to keep the lights on.
This past week, the Canadian and German governments signed a deal that would export hydrogen fuel to Europe starting as soon as 2025.
Meanwhile, the U.S. Inflation Reduction Act, which Mr. Biden signed into law the previous week, aims to kick-start investment in hydrogen fuels cells with a tax credit that can be applied to trucks and buses running on the technology.
The spate of good news for hydrogen stocks continued on Thursday with Amazon.com Inc. announcing a deal with U.S. fuel cell maker Plug Power Inc. to supply green hydrogen for some of the retailer’s forklifts and long-haul trucks.
While questions remain about hydrogen’s commercial viability as well as its effectiveness in fighting climate change, some investors are jumping on the bandwagon. Even after dipping by 4 per cent in Friday’s broad stock market sell-off, the Horizons Global Hydrogen Index ETF is still up by 24 per cent over the past month.
“This in an industry where there’s lots of potential, so it’s not hard for the market to spin a compelling story,” Mr. Mann said. “It gets the speculative juices flowing.”
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The run-up of tech stocks back in the late 1990s saw the first investor frenzy for hydrogen stocks, with Ballard’s shares rising well above US$100 a share, before collapsing when the bubble popped.
But over the years, the company has proven adept at issuing equity and raising enormous amounts of money at just the right time. That cash has helped Ballard stick around all these years even as it has failed to generate profits.
The company repeated that feat last year, in the midst of a sizzling stock market rally that pushed clean energy names to incredible heights. Over a three-month period up to late February, 2021, Ballard raised US$950-million in two rounds of fundraising priced as high as US$37 per share. Three months later, the stock was trading around US$16.
Analysts have been reducing their forecasts for Ballard of late, with operating losses of $145-million and $138-million expected for this year and next year, respectively.
But Ballard also had roughly US$1-billion in cash and zero debt on its balance sheet at the end of second quarter.
“That’s their lifeline,” Mr. Mann said. “Carrying a ton of debt is often what ultimately kills these kinds of speculative stocks.”
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