A “cheap” stock is like finding a hidden gem in a thrift store. You’re getting something valuable for a bargain price. Yet when we say a stock is cheap, we’re usually talking about its price relative to its earnings, assets, or cash flow. In other words, you’re paying less for each dollar the company makes or owns. This can happen because the market hasn’t caught on to the company’s potential yet or because short-term problems have driven the price down. However, the underlying business remains solid.
On the flip side, just because a stock is low-priced doesn’t necessarily mean it’s “cheap.” A stock might be trading at a low price because the company is struggling, and its future looks bleak. In this case, you’re not getting a bargain. You might just be getting what you pay for, an asset that’s worth exactly what it’s priced at, or even less. So, the key is to dig deeper and make sure that “cheap” stock isn’t actually just cheap quality!
Ballard Power powering down?
Ballard Power Systems (TSX: BLDP), once the darling of the clean energy world, has had a bit of a rollercoaster ride recently. A few years back, the stock was soaring high on the promise of hydrogen fuel cells taking over the world. Everyone was buzzing about how Ballard was going to be the go-to company for powering everything from buses to drones with clean, green hydrogen. But the stock started sliding as investors got jittery about whether hydrogen would really catch on as quickly as they hoped.
The recent drop in Ballard Power’s shares has a lot to do with a mix of slowing momentum in the hydrogen sector and the company’s financials not quite living up to the early hype. Investors are seeing delays in big hydrogen projects and realizing that turning a futuristic idea into a profitable reality takes time. Plus, Ballard’s revenues have been a bit underwhelming, and that has made some investors second-guess their earlier enthusiasm. So, while Ballard’s long-term prospects might still be bright, the stock has been taking a breather as the market waits for clearer signs of growth.
Earnings momentum
Ballard Power’s recent earnings momentum has been a bit of a mixed bag. In the latest quarter, Ballard launched its ninth-generation PEM fuel cell engine. This new engine is not only more efficient but also more reliable and scalable. The company also made strides in advanced manufacturing with its Project Forge, aiming to slash costs and ramp up production. Despite these exciting developments, revenue growth was modest at 4% year over year, and the gross margin dipped. However, with cash reserves still strong at $678 million, Ballard is holding its ground while positioning itself for bigger gains down the road.
On the flip side, new order intake was lower than expected, with some customers deferring their purchases. This put a dent in the company’s order backlog. The stationary power and emerging markets segments also saw declines, contributing to a net loss from continuing operations of $31.5 million. Even so, Ballard is still focused on reducing costs and improving efficiencies, keeping an eye on the bigger picture. The company is poised for a stronger second half of 2024, banking on increased revenue and improved margins as more customers come on board with their fuel cell technology.
Valuable? Or volatile?
Ballard Power stock might catch your eye if you’re a fan of long-term plays in the clean energy sector. Yet, it’s not without its risks. On the one hand, the company is making exciting strides in hydrogen fuel cell technology, with new product launches and ongoing projects aimed at reducing costs and boosting production. Plus, their recent earnings reports show some positive momentum, especially with growing revenues in key verticals like Heavy Duty Mobility.
However, the stock has been on a bit of a losing streak, down over 54% in the past year. Ballard is still not profitable, with significant losses and negative cash flow. Sure, the stock is trading at a discount, with a price-to-book ratio of just 0.60. Yet that low valuation reflects the market’s concern about the company’s ability to turn things around in the near term. If you believe in the long-term potential of hydrogen and are comfortable with some volatility, Ballard could be a speculative buy. But if you’re looking for something more stable or already profitable, it might be wise to stay on the sidelines for now.
