The Motley Fool

Stock Market Rally: #1 Stock to Ditch or Buy Now

Image source: Getty Images

The recent March 2020 market crash has left many stocks undervalued on the Toronto Stock Exchange. On the other hand, the stock market volatility may have also created undue enthusiasm toward some alternative energy stocks like Ballard Power Systems Inc (TSX:BLDP)(NASDAQ:BLDP).

Since the start of the year, the price of Ballard Power Systems has increased by 45.69%. Compared to the 14.21% decline in the S&P/TSX Composite Index, this is a fantastic stock performer!

BLDP Chart

While conservative investors might view the stock as a safe haven, long-term investors should still be wary. Unrealistic growth expectations could be the motivation for the stable price trend during the market downturn.

In the past three years, the price of Ballard Power Systems Inc stock has closely tracked the index level percent change of the TSX. It wasn’t until the middle of 2019 that the stock began to rapidly diverge away from the index. In the past three years, the price of Ballard increased by 281.9%, while the index level has dropped by 4.16%.

Ballard Power a leading fuel cell player

Analysts list Ballard Power Systems as a major fuel cell player over the next decade.

Automotive Fuel Cell Market Forecasts to 2028 – Leading Players are Ballard Power Systems, Plug Power, Delphi Technologies, Doosan Corp, Hydrogenics, and ITM Power

Stock Market News (@Stock_Market_Pr) April 27, 2020

Environmentalists and government agencies hope that fuel cell technology like that produced at Ballard Power Systems will delay environmental damage and global warming. The next decade will be a crucial turning point for companies like Ballard to capture their share of the growing automotive fuel cell market.

Ballard Power: an overvalued stock market play

Ballard Power is definitely not a pick for value investors inspired by Warren Buffett. We can’t calculate the P/E ratio because earnings were a negative $39 million for 2019.

Further, the price-to-sales (P/S) ratio on Ballard Power is an expensive 19.21! A P/S ratio of anything over 1 is expensive for long-term investors interested in buying stocks at a discount.

Even worse: the price-to-book (P/B) ratio is 7.93. Again, value investors want to purchase stocks with low price ratios. Thus, Ballard Power is a growth buy, if anything.

Will Ballard Power grow into its market valuation?

There are always risks that new technology won’t succeed, such as the infamous Blu-Ray versus HD DVD optical disk war of the early 2000s. Alternatively, a competitor can siphon off the competition, as the case with BlackBerry and Apple.

If you want to know whether Ballard Power will grow into its stock market valuation, you need to look at its competition. Alternative technology and more powerful players are the top threats to retirement portfolios containing Ballard Power stock.

Other than that, you can only look at the 69.7% projected growth (CAGR) in the fuel cell market by 2028 as a safety gauge. Analysts expect the automotive fuel cell market to boom.

Nevertheless, demand for automobiles will impact these growth rates. A looming recession and increased demand for public transportation could all stifle these estimates.

When it comes to stock market investing, nothing is a sure thing. However, if you have spare cash lying around that you won’t need for the next eight years, there’s no harm in adding some risk to your TFSA or RRSP with this growth stock.

This Tiny TSX Stock Could Be the Next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting...
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago - before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

Click here to discover how!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Debra Ray has no position in any of the stocks mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends BlackBerry and BlackBerry.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.