Clean Energy Fuels Is Too Far Out of the Mainstream
Clean Energy Fuels (NASDAQ:CLNE) reminds me of another company that briefly became extremely popular among retail investors: Gevo (NASDAQ:GEVO). The shares of both GEVO stock and CLNE stock are now about 50% off their 52-week highs and have generated mediocre returns in recent weeks , as many investors apparently started to realize that neither of them was going to post hugely impressive financial results anytime soon.
I agree with that thesis, mostly because both companies specialize in renewable fuels that haven’t been widely embraced by governments and many large companies. And, as a result of this situation, I think that it will be very difficult for Clean Energy and Gevo to justify their current valuations, even over the longer term.
Outside of the Mainstream
Clean Energy develops “renewable natural gas (RNG)…from organic waste.” According to the company, RNG “drastically reduces carbon emissions.”
But for governments and most companies, wind, solar, electric vehicles, and green hydrogen, all of which have zero or net-zero carbon emissions, are the most popular remedy for the climate crisis. As I’ve documented in past columns, the EU, California, and the Biden administration are either subsidizing or are looking to subsidize the solutions that I named above.
Meanwhile, many of the world’s largest companies are also embracing those solutions. As is well-known, many of the largest auto companies on the globe are manufacturing hundreds of thousands of electric vehicles. The large European auto company Renault, through a joint venture with Plug Power (NASDAQ:PLUG) and the Japanese giant Toyota (NYSE:TM) have both launched large-scale hydrogen initiatives.
Many large electric utilities, including FPL and Berkshire Hathaway (NYSE:BRK.B) subsidiary NV Energy, have embarked on huge solar energy projects, while FPL and a number of Texas utilities have developed multiple wind energy projects. Finally, Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) Google has invested a great deal of money in both wind and solar power.
American consumers have started to become used to seeing wind, solar, and EVs as the key solutions to climate change, and soon hydrogen will be in that category as well. Since many if not most businesses care a great deal about impressing consumers, most firms are much more likely to spend their money on these popular solutions than on Clean Energy’s renewable natural gas.
Clean Energy’s deal with Amazon (NASDAQ:AMZN), announced in April, could put Clean Energy’s RNG on the map and meaningfully boost Clean Energy’s financial results. But my sense is that the deal is just a trial by the e-commerce giant that may or may not cause the latter company to become meaningfully profitable over the longer term and result in Clean Energy’s RNG becoming well-known and widely used. Despite the deal, I still believe that, in the end, the vast majority of businesses, including Amazon, will primarily use the renewable solutions that are being embraced by governments and consumers.
Clean Energy’s Financial Results Support My Thesis
Despite society’s larger-than-ever emphasis on fighting climate change in the past few years, Clean Energy’s revenue has stagnated or dropped during that time. Specifically, its top lines were $40.2.7 million, $341.6 million, $346.4 million, $344.1 million, and $291.7 million in 2016, 2017, 2018m, 2019, and 2020, respectively.
And although Clean Energy Fuels was founded 20 years ago, its operating income continues to be negative or only slightly positive, coming in at -$19.2 million, -$9.9 million, and $8.9 million over the last three full years.
The Waning Power of the Meme-Stock Crowd
In recent weeks, CLNE stock has been popular with meme-stock investors.
As I’ve noted in prior columns, I think that the power of the mem- stock investors is declining as the federal government’s stimulus money is drying up, cryptocurrencies, in which many millenials have invested, are weakening, and as many consumers start to spend more money on going out and trips as the economy reopens.
Indeed, many meme stocks other than Clean Energy are well off their highs. For example, GameStop (NYSE:GME) is trading around $210, down from its peak of $483, while Koss (NASDAQ:KOSS) is changing hands for around $23.30, versus its high of $127. And gone are the days when meme stock would routinely double or triple within a few trading sessions.
The Bottom Line on CLNE Stock
With governments and most large businesses failing to embrace RNG, Clean Energy will likely continue to find it difficult to greatly boost its top and bottom lines.
Meanwhile, CLNE stock has a large (for a non-growth company)trailing price/sales ratio of 7.6 and the meme-stock investors appear to have lost their mojo. Given these points, I recommend selling the shares.
On the date of publication, Larry Ramer held a long position in PLUG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, Ford, Exxon, and Snap. You can reach him on StockTwits at @larryramer.
