Over the past six months, Clean Energy Fuels’s stock price fell to $1.96. Shareholders have lost 12.2% of their capital, which is disappointing considering the S&P 500 has climbed by 6.3%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Clean Energy Fuels, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Clean Energy Fuels Will Underperform?
Even though the stock has become cheaper, we’re passing on Clean Energy Fuels for now. Here are three reasons you should be careful with CLNE, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Cyclical sectors like Energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Regrettably, Clean Energy Fuels’s sales grew at a mediocre 9.2% compounded annual growth rate over the last five years. This was below our standard for the energy upstream and integrated energy sector.
2. Fewer Distribution Channels Limit Its Ceiling
The scale of a company’s revenue base is an important lens through which to view the topline, as it signals whether a producer has gone from a vulnerable commodity taker into a durable operating platform. Larger producers generate revenue across many wells, pads, takeaway routes, and geographies rather than relying on a single field or drilling program.
Clean Energy Fuels’s $438.6 million of revenue in the last year is pretty small for the industry, suggesting the company is a subscale business in an industry where scale matters.
3. Low Gross Margin Reveals Weak Structural Profitability
In any given year, energy gross margins are heavily influenced by prices, hedging, and cost inflation, but over a full cycle these gross margins reveal which producers are structurally advantaged through superior “rock” quality, infrastructure access, and cost position.
Clean Energy Fuels, which averaged 24.4% gross margin over the last five years, exhibited bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins.
Final Judgment
Clean Energy Fuels falls short of our quality standards. Following the recent decline, the stock trades at a lofty forward P/E (or $1.96 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. Let us point you toward our favorite semiconductor picks and shovels play.
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