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Clean Energy Up 24% in 6 Months: How to Play the Penny Stock?
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Shares of natural gas supplier Clean Energy Fuels Corp. (CLNE - Free Report) have gained 24% in the past six months to close at $2.84 yesterday, significantly outperforming the industry and the S&P 500. This uptick in stock price was triggered by the company’s strong position in the renewable natural gas (“RNG”) market, robust EBITDA growth and supportive collaborations.
CLNE 6-Month Stpck Performance
Image Source: Zacks Investment Research
So, are Clean Energy shares still worth buying, or should we hold tight? Some might even suggest taking the gains and exiting before CLNE stock becomes a risky bet for investors. Let’s delve deeper into the company’s strengths and weaknesses.
About CLNE
Clean Energy Fuels is a leading renewable energy company specializing in the procurement and distribution of RNG and conventional natural gas, including compressed and liquefied natural gas. Operating over 600 fueling stations across the United States and Canada, CLNE focuses on serving the heavy-duty transportation sector. The company is committed to expanding its RNG production, positioning itself as a key player in the transition to cleaner energy for commercial transportation.
Reasons Behind Clean Energy's Upsurge
Growing Demand for RNG: One of the most compelling aspects of CLNE’s investment case lies in its dominance as the largest provider of RNG in North America. RNG offers a 300% reduction in emissions compared to diesel, which positions CLNE to benefit from the increasing demand for cleaner alternatives in the transportation industry. As the decarbonization narrative gains strength, particularly in heavy-duty trucking, RNG provides a viable solution, making CLNE an attractive long-term player in energy transition.
Improving Financial Performance and Positive Cash Flow: CLNE’s second-quarter results show signs of improvement. Despite a net loss, the company posted a positive non-GAAP EPS and an adjusted EBITDA of $18.9 million, up from $12.1 million in the year-ago quarter. This financial turnaround is supported by solid operating cash flow, which reached $21.4 million in the first half of 2024 compared to a negative cash flow during the same period last year. With $250 million in cash reserves, CLNE’s liquidity and ability to fund operations without significant dilution provide stability amid its path toward profitability.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Expanding Infrastructure and Strategic Partnerships: CLNE's strategic expansion through its North American infrastructure is a key growth driver. Collaborations with major customers like Amazon (AMZN - Free Report) and partnerships with firms like Tourmaline for developing fueling stations in Canada further solidify the company’s market position. As these partnerships grow, they strengthen CLNE’s recurring revenue base and position it to capture demand in the RNG sector, creating positive momentum for stock appreciation.
Vertical Integration to Drive Margin Expansion: As CLNE increases its ownership of RNG production facilities through joint ventures with BP plc (BP - Free Report) and TotalEnergies (TTE - Free Report) , the company will capture higher margins. Moving from a mere distributor to a producer allows Clean Energy to benefit from additional environmental credits. This shift is expected to boost EBITDA margins significantly.
Image Source: Clean Energy Fuels Corp.
A Word on CLNE’s Valuation
For all its fundamental strength and bullishness, CLNE’s valuation appears unattractive. Based on EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), Clean Energy is not as compelling compared to similar companies in the renewable energy space, especially with its market cap being historically low at $632 million compared to the previous highs of $3.5 billion. The stock also has a poor Value Score of D despite its low share price.
Image Source: Zacks Investment Research
Other Hurdles in Clean Energy’s Path
Revenue Growth Uncertainty: CLNE has struggled to achieve meaningful revenue growth over the years. Despite reaching revenue levels seen back in 2014, overall financial performance remains volatile, with revenue consistently fluctuating. The lack of substantial growth momentum raises concerns about the company’s ability to capitalize on the increasing demand for renewable natural gas, potentially limiting its stock price appreciation.
Image Source: Zacks Investment Research
Declining Sales Volume: In the second quarter of 2024, Clean Energy CLNE sold 57.1 million gallons of RNG, down from 58.6 million in the same quarter last year. This reduction stemmed from non-repeating sales of RNG outside their station network, a factor anticipated at the start of the year. Despite efforts to increase RNG distribution in-house, the decline in sales volume poses challenges, impacting revenue growth and potentially limiting future profitability.
Dependence on External RNG Supply: CLNE’s reliance on third-party RNG supply remains a challenge. Even with strategic joint ventures, its proprietary production will account for less than 10% of total RNG sold, limiting its ability to improve margins. This dependence exposes the firm to price volatility and supply risks, reducing its competitive advantage in controlling its product chain.
Conclusion: Not the Right Time to Buy
With its operational focus on RNG and its industry-leading distribution network, the company is well-positioned to benefit from the strength in forecasted renewable fuel demand. CLNE also has strong backing from its joint ventures and partnerships. The company’s growing operational efficiency could contribute to investor confidence in Clean Energy's future potential. However, its valuation risks, revenue growth challenges and heavy reliance on external RNG procurement raise red flags for potential investors.
Investors looking for a high-risk, high-reward opportunity may find Clean Energy appealing, but those with a lower risk tolerance may want to sit on the sidelines for now. As market sentiment toward clean energy stocks improves, particularly in the wake of increasing focus on environmental sustainability, there’s potential for CLNE’s stock to benefit.
Clean Energy Fuels currently carries a Zacks Rank #3 (Hold).
Image: Bigstock
Clean Energy Up 24% in 6 Months: How to Play the Penny Stock?
Shares of natural gas supplier Clean Energy Fuels Corp. (CLNE - Free Report) have gained 24% in the past six months to close at $2.84 yesterday, significantly outperforming the industry and the S&P 500. This uptick in stock price was triggered by the company’s strong position in the renewable natural gas (“RNG”) market, robust EBITDA growth and supportive collaborations.
CLNE 6-Month Stpck Performance
So, are Clean Energy shares still worth buying, or should we hold tight? Some might even suggest taking the gains and exiting before CLNE stock becomes a risky bet for investors. Let’s delve deeper into the company’s strengths and weaknesses.
About CLNE
Clean Energy Fuels is a leading renewable energy company specializing in the procurement and distribution of RNG and conventional natural gas, including compressed and liquefied natural gas. Operating over 600 fueling stations across the United States and Canada, CLNE focuses on serving the heavy-duty transportation sector. The company is committed to expanding its RNG production, positioning itself as a key player in the transition to cleaner energy for commercial transportation.
Reasons Behind Clean Energy's Upsurge
Growing Demand for RNG: One of the most compelling aspects of CLNE’s investment case lies in its dominance as the largest provider of RNG in North America. RNG offers a 300% reduction in emissions compared to diesel, which positions CLNE to benefit from the increasing demand for cleaner alternatives in the transportation industry. As the decarbonization narrative gains strength, particularly in heavy-duty trucking, RNG provides a viable solution, making CLNE an attractive long-term player in energy transition.
Improving Financial Performance and Positive Cash Flow: CLNE’s second-quarter results show signs of improvement. Despite a net loss, the company posted a positive non-GAAP EPS and an adjusted EBITDA of $18.9 million, up from $12.1 million in the year-ago quarter. This financial turnaround is supported by solid operating cash flow, which reached $21.4 million in the first half of 2024 compared to a negative cash flow during the same period last year. With $250 million in cash reserves, CLNE’s liquidity and ability to fund operations without significant dilution provide stability amid its path toward profitability.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Expanding Infrastructure and Strategic Partnerships: CLNE's strategic expansion through its North American infrastructure is a key growth driver. Collaborations with major customers like Amazon (AMZN - Free Report) and partnerships with firms like Tourmaline for developing fueling stations in Canada further solidify the company’s market position. As these partnerships grow, they strengthen CLNE’s recurring revenue base and position it to capture demand in the RNG sector, creating positive momentum for stock appreciation.
Vertical Integration to Drive Margin Expansion: As CLNE increases its ownership of RNG production facilities through joint ventures with BP plc (BP - Free Report) and TotalEnergies (TTE - Free Report) , the company will capture higher margins. Moving from a mere distributor to a producer allows Clean Energy to benefit from additional environmental credits. This shift is expected to boost EBITDA margins significantly.
A Word on CLNE’s Valuation
For all its fundamental strength and bullishness, CLNE’s valuation appears unattractive. Based on EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), Clean Energy is not as compelling compared to similar companies in the renewable energy space, especially with its market cap being historically low at $632 million compared to the previous highs of $3.5 billion. The stock also has a poor Value Score of D despite its low share price.
Other Hurdles in Clean Energy’s Path
Revenue Growth Uncertainty: CLNE has struggled to achieve meaningful revenue growth over the years. Despite reaching revenue levels seen back in 2014, overall financial performance remains volatile, with revenue consistently fluctuating. The lack of substantial growth momentum raises concerns about the company’s ability to capitalize on the increasing demand for renewable natural gas, potentially limiting its stock price appreciation.
Declining Sales Volume: In the second quarter of 2024, Clean Energy CLNE sold 57.1 million gallons of RNG, down from 58.6 million in the same quarter last year. This reduction stemmed from non-repeating sales of RNG outside their station network, a factor anticipated at the start of the year. Despite efforts to increase RNG distribution in-house, the decline in sales volume poses challenges, impacting revenue growth and potentially limiting future profitability.
Dependence on External RNG Supply: CLNE’s reliance on third-party RNG supply remains a challenge. Even with strategic joint ventures, its proprietary production will account for less than 10% of total RNG sold, limiting its ability to improve margins. This dependence exposes the firm to price volatility and supply risks, reducing its competitive advantage in controlling its product chain.
Conclusion: Not the Right Time to Buy
With its operational focus on RNG and its industry-leading distribution network, the company is well-positioned to benefit from the strength in forecasted renewable fuel demand. CLNE also has strong backing from its joint ventures and partnerships. The company’s growing operational efficiency could contribute to investor confidence in Clean Energy's future potential. However, its valuation risks, revenue growth challenges and heavy reliance on external RNG procurement raise red flags for potential investors.
Investors looking for a high-risk, high-reward opportunity may find Clean Energy appealing, but those with a lower risk tolerance may want to sit on the sidelines for now. As market sentiment toward clean energy stocks improves, particularly in the wake of increasing focus on environmental sustainability, there’s potential for CLNE’s stock to benefit.
Clean Energy Fuels currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.