Shares of the proton exchange membrane (PEM) fuel cell products designer Ballard Power Systems, Inc. (BLDP) declined  33.8% over the past month. The stock has also lost 42.7% since hitting its all-time high of $42.28 on February 9. This can be  attributed primarily to  investors’ recognition  that the hydrogen-power industry is still in its infancy. Also, because a $1.9 trillion U.S. coronavirus relief package will soon be disbursed, investors are now more interested in companies that are expected to grow faster as the economy recovers.

PEM fuel cells produced by the company are expected to be useful in driving the shift towards a sustainable future. However, battery-powered vehicles may dominate the EV industry in the near term.

Furthermore,  BLDP’s financials are not promising. In fact, the company even sold its Unmanned Aerial Vehicle (UAV) business to Honeywell International Inc. (HON) in October. So, BLDP’s near-term prospects appear uninspiring.

Here are the factors that I think could influence BLDP’s performance in the coming months:

Revenue Decline Across Major Categories

BLDP’s total revenue declined 31.6% year-over-year to $28.60 million for the fourth quarter ended December 31, 2020. Its revenue from the power products segment for the quarter decreased nearly 41% year-over-year due primarily to lower shipments of heavy-duty motive fuel cell products to customers in China. Revenue from the technology solutions segment also decreased 17.1% year-over-year to $13.60 million because of decreased revenue from a  program with Audi. The  company’s net loss from continuing operations was  $14.40 million for the quarter.

Selling Shares to Fund Company’s Growth Activities

In  February , BLDP  decided  to increase the size of its previously announced $350 million financing deal. The company is expected to use the offering’s  proceeds to strengthen its balance sheet and for product innovation, investments in production capacity expansion and localization, future acquisitions and strategic partnerships and investments.

BLDP  generated $402.50 million as gross proceeds from a financing deal that it closed on November 27. It also  generated $250 million in  gross proceeds from the at-the-market (ATM) equity program that it  administered  on September 1.

Expensive Valuation

In terms of forward enterprise value/sales, BLDP’s 53.41x is significantly higher than the industry average  2.03x. In terms of forward price/sales, the stock’s 56.08x is higher than the industry average  1.61x. The stock’s forward price-to-book of 5.01x is also 61.6% higher than the industry average 3.10x.

Consensus Price Target Indicates Downside

Wall Street analysts expect the stock to hit $23.98 in the near term, which indicates a potential decline of 19.5%.

Unfavorable POWR Ratings

BLDP has an overall rating of F, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. BLDP has an F grade for Value, which is consistent with its significantly higher-than-industry valuation ratios.

The stock has an F grade for Quality also. This is justified given BLDP’s trailing-12-month’s gross profit margin of 20.5%, which is lower than the industry average  28.8%. The stock also has negative values for ROE and ROA.

Click here to access BLDP’s ratings for Growth, Momentum, Stability and Sentiment as well.

BLDP is ranked #87 of 89 stocks in the Industrial – Equipment industry.

Better than BLDP: Click here to access several other top-rated stocks in the same industry.

Bottom Line

Because the hydrogen-power industry has a way to go before it becomes much more popular and can compete with other sustainable energy sources, we think it  wise to avoid BLDP for now. The stock is trading at lofty valuations, which is not justified given the company’s weak financials. So, until BLDP announces a major development that can justify its sky-high valuations, it’s better to avoid the stock.

Want More Great Investing Ideas?

11 Top Stocks for March 11

9 “MUST OWN” Growth Stocks for 2021

How to Ride the 2021 Stock Market Bubble

5 WINNING Stocks Chart Patterns

BLDP shares were trading at $25.71 per share on Thursday afternoon, up $2.22 (+9.45%). Year-to-date, BLDP has gained 9.87%, versus a 5.57% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

More Resources for the Stocks in this Article