One of Warren Buffett’s famous quotes is, “Price is what you pay, value is what you get.” Value is subjective. What is valuable to me might not be to someone else. In stocks, you can derive value through the book value of the share and the returns you expect from the stock. While the first one is objective, the second one is subjective. If your objective is to become a millionaire one day (no timeframe), and you are willing to take the risk, this stock is undervalued for you by both measures.
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Why is the stock undervalued?
The stock in discussion is Ballard Power Systems (TSX:BLDP). It is trading at 0.7 times its book value. What does it mean? As an equity shareholder, you have the right to the company’s net profit. The book value of the share is the total equity value (in the balance sheet) divided by the number of equity shares issued. As per the books, shares of Ballard Power Systems are trading at a 30% discount from its book price.
This lower valuation is because the company has not yet turned profitable. It is funding its losses with its cash reserves. How can a loss-making company be undervalued?
Here, the subjective part comes in. The company is perfecting its hydrogen fuel cell technology that powers commercial vehicles like buses, trains, forklifts, and marine. Such vehicles fulfill bulk orders and have a centralized fueling station, reducing the cost of building a refuelling infrastructure. The company is working with governments that provide grants for green energy. While the progress is tepid, it could reach an inflection point once hydrogen fuel technology becomes cheaper than gas.
The forecast of hyper-growth is based on the hope that the technology becomes widespread, and Ballard Power Systems is there to harness the growth that comes with it.
Could this undervalued stock make you a millionaire?
You have seen how Tesla surged on the electric vehicle inflection point between 2019 and 2021. A $10,000 investment in November 2019 became $250,000 in November 2021 when the stock was at its peak. The loss-making automaker turned profitable during the inflection point. What triggered the inflection? The need to cut CO2 emissions. And this need will only increase given the rate at which global warming is growing.
The 2022 energy crisis forced many countries to fire up closed thermal power plants, increasing emissions. When governments prioritize green energy, hydrogen fuel cell adoption will grow even if the technology is expensive. This is because this technology will be looked at from a different perspective. Instead of comparing the cost of hydrogen fuel cells with gas-fired or electric vehicles, they will be compared with the cost of emissions.
At that time, Ballard Power Systems and a handful of other hydrogen fuel cell companies will have the solution. When that inflection point will come, nobody can tell. Hence, it needs to employ the buy-and-forget strategy.
How to invest for a chance at a million-dollar portfolio
Even the biggest investors who have grown rich from fundamental investing will tell you that you cannot predict the market or the future. They became rich when a few of their many investments paid off big time. Behind every success, there are a series of failures. In a portfolio of five to ten high-growth stocks, you only need one or two stocks that could break records. Their hyper-growth will offset the losses from other stocks in the portfolio while making you a millionaire.
Ballard Power Systems is a hyper-growth stock that could convert $10,000 into a quarter or half a million if your forecast comes true. Meanwhile, your losses will be capped at your invested amount.
