The natural gas provider Clean Energy Fuels Corp.’s (CLNE) stock has rocketed  more than 65% recently  to close Friday’s trading session at $12.97. The stock hit its 52-week high of $13.60 on February 4. However, we think the stock could witness a pullback in the near term based on its relatively weak financials and a bleak industry outlook.

As other sources of renewable energy are seeing increased uptake thanks to their declining costs, CLNE’s future looks uncertain. Moreover, the company failed to generate profits in the last-reported quarter.

Let’s take a closer look at the factors that could influence  CLNE’s stock price in the near term:

Increasing Number of RNG Facilities

As a pioneer and expert in natural gas for transportation, CLNE has been aggressively expanding its number of renewable natural gas (RNG) production facilities over the past year. On December 21, 2020, the company announced its plans to work with BP Products North America Inc., a subsidiary of BP p.l.c. (BP), to develop, own and operate new RNG facilities at dairies and other agriculture facilities.

Estes, too, partnered with the company in September 2020 to add 50 new trucks fueled with CLNE’sRedeem RNG. CLNE also provided the Redeem RNG to the New York Metropolitan Transportation Authority (MTA) in September 2020 to power the MTA’s 800 natural gas transit buses.

Gloomy Outlook for Natural Gas Consumption

Although  2021 is expected to be a year of recovery for the natural gas industry, the prospects for natural gas consumption are not very bright. In fact, the United States’ Energy Information Administration (EIA) expects consumption of natural gas in the U.S. to decrease by 2.3 Bcf/d (2.8%) in 2021 and then decrease by a further 1.7 Bcf/d (2.1%) in 2022.

At a time when solar energy is one of the cheapest renewable fuels , and wind energy is also becoming cheaper day by day,  natural gas prices are increasing. This is expected to lead to a decline in its consumption.

Weak Financials

CLNE  reported total revenues of $70.89 million for the third quarter ended September 30, 2020, representing a  4.8% decline year-over-year. The company also reported a net loss of $2.27 million for the same period. Adversely impacted by the COVID-19 pandemic, CLNE delivered 97.7 million cubic feet  in the third quarter of 2020, which is a 5% decline from 102.7 million cubic feet delivered in the third quarter of 2019.

Analysts expect the company’s revenue and EPS to decline 16.3% and 200%, respectively for the quarter ending March 2021.

Consensus Price Target Indicates Potential Downside

Wall Street analysts expect the stock to hit $10.67 soon, which indicates a potential downside of 16.6%.

Our POWR Ratings do not indicate enough Upside

CLNE has an overall rating of C, which equates to Neutral 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. CLNE has a grade D for Value, which is justified given its trailing-12-month p/s of 7.80x, which is considerably higher than the industry average of 1.16x.

The stock also has grade D for Sentiment, which is in sync with the unfavorable analyst sentiment.

Click here to get CLNE’s ratings for Growth, Momentum, Stability and Quality.

The stock is ranked 35 out of 51 stocks in the Energy – Services industry. And the industry is rated F. However, there are three top-rated stocks in the same industry.

Bottom Line

Though CLNE has been expanding its business and making strategic partnerships it reported a loss in the last-reported quarter. Also, as other renewable energies are expected to dominate the market, the prospects look bleak for CLNE. We think that with its  hefty valuation, a meaningful correction could be due for the stock.

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CLNE shares were trading at $17.50 per share on Monday afternoon, up $4.53 (+34.93%). Year-to-date, CLNE has gained 122.65%, versus a 4.06% 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...

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