Bloom Energy vs Plug Power Stock: Investing in the things that people use every day is a common investment strategy.
While it isn’t for everyone, investors in this camp buy shares in companies that make popular products, like McDonalds, Walmart, or Apple. Another version of this approach is to invest in services people use often, like cell phone companies or utilities.
Utilities: The Good, Bad & Ugly
Utility companies are always in demand – people need water and electricity – and this makes the sector relatively stable. These firms tend to be less risky than most other stocks, but they are riskier than many conservative investments, like bonds.
Utility companies often offer yields that are higher than that of the S&P 500 and with lower volatility. Plus, most utility companies have a monopoly in their regions so as long as the population grows, the need for their services grow.
That’s the plus side, but it wouldn’t be an investment if there wasn’t a downside risk.
The popularity of utilities is no guarantee that the companies which provide those services will operate effectively or efficiently. During the past two recessions, utility companies saw their share prices shrink by 50% – less than some sectors but still significant.
There are also market forces that come into play. For one, rising interest rates can be a problem. Running a utility company is very capital intensive. As such, firms in this space tend to have a ton of debt so any increase in interest rates means their costs go up. Further, the industry is vulnerable to changes in government regulations. Compliance can be expensive if not borderline prohibitive.
There is also the technology itself to consider. The market for power is huge, but it is changing. Alternative technologies are gaining ground. Companies in this space present more risk than investing in a utilities company but can still give investors access to a large, stable potential market. Let’s look at two: Bloom Energy [NYSE: BE] and Plug Power [NASDAQ: PLUG].
Is Bloom Energy Stock a Buy?
Bloom Energy is a company that makes a “stationary power generation platform” that creates clean electricity.
It uses electrochemical processes to convert biogas or low-pressure natural gas without using combustion. Emissions are lower and the technology is very space-efficient. Plus, it is easily scaled.
Rather than supply cities or regions with power, Bloom Energy primarily serves companies that want to power their operations more efficiently.
Some of its top clients include AT&T, The Home Depot, and Kaiser Permanente. Bloom Energy counts 25 companies from the Fortune 100 amongst its customers. However, the company also serves geographic areas, via customers like the Delmarva Power & Light Company.
According to Bloom Energy [NYSE: BE], companies and cities have not been investing enough in maintaining the infrastructure of electricity – and this creates opportunities for Bloom to grow.
Traditionally, power generation can require a lot of capital to get going but the Bloom Energy approach is more efficient.
Further, existing power grids are in trouble. Their vulnerabilities are aging and breaking down. These issues cause outages, many of which could be avoided.
Companies in the US lose up to $150 billion because of weather-related interruptions in power. There is also the risk of hackers and sabotage to consider. Public power grids are vulnerable in ways that a solution like Bloom Energy [NYSE: BE] just isn’t.
At the same time, traditional power options are producing greenhouse gases and other emissions that could be avoided. Bloom Energy’s offerings could also be used in developing countries or undeveloped areas.
Bloom Energy’s value proposition is that it is reliable and sustainable with predictable costs and easy scaling. It competes against clean energy companies – including solar and wind power – as well as power generators and fuel cells.
There are obvious advantages to using Bloom Energy but there are still challenges facing the company. It has to comply with different regulations and that can be costly.
The company also hasn’t been around very long. The company is operating in virtually uncharted territory. It still has to deal with market acceptance.
Bloom Energy is bound to go through some growing pains before it takes root. Granted, the company has attracted some big-name customers, but it will need to ramp up its operations and be strategic about its investments to be successful in the long run.
Should You Invest in Plug Power Stock?
Plug Power is also involved in alternative energy. However, this company’s core business is hydrogen and fuel cell systems.
It wants to eliminate the need for traditional lead-acid batteries in the world of manufacturing. Many of its fuel cell solutions are geared towards industrial vehicles like forklifts.
This technology is called GenDrive and it is the company’s core business. Plug Power [NASDAQ: PLUG] also develops fuel cells for use in generators so that people can ditch their diesel generators for greener technology, sells a turnkey power solution for customers who want to transition to fuel cells, and offers a maintenance program.
The company has been around since 1997, so it isn’t a young company. It currently has more than 25,000 of its GenDrive units on the market. However, Plug Power has not been profitable in any quarter since its formation. This situation isn’t unusual for a company that is growing – especially one with a new technology – but it is something potential investors should note.
There is something to be said for knowing how to run a company in such a way to grow profits or knowing when to stop investing and start earning. Plug Power has had some quality issues as well. Resolving those issues cost important capital and cost the company some of its reputation.
Going forward, Plug Power [NASDAQ: PLUG] needs to focus on ways to cut costs, rebuild its image, improve its quality, and introduce its products. To keep going as it has been, the company will need to attract additional funding – and that can be difficult when you are showing a consistent loss.
The company also needs to have access to hydrogen. It has connections with suppliers, but Plug Power is still vulnerable to availability and pricing.
Bloom Energy vs Plug Power Stock: The Bottom Line
Government incentives and subsidies may help both of these companies attract new customers, but they still need to run their companies well.
Investing in either company is a speculative play – Bloom Energy focuses on alternative power grids for companies and cities while Plug Power makes fuel cells for industrial use.
Over time, there is big potential, but investors should be aware that these opportunities do come with risk.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.