Natural gas supply company Clean Energy Fuels (NASDAQ: CLNE) saw its stock rise by almost 15% over the last week (five trading days) outperforming the S&P 500 which has remained roughly flat over the same period. It appears that the stock is gaining the attention of Reddit investors, who have been piling into stocks with relatively high levels of short interest and low stock prices. At one point, the stock was up by over 20% between Thursday and Friday, despite the fact that there wasn’t much meaningful news relating to the company, or the broader oil and gas space. So how is Clean Energy Fuels stock expected to trend in the near term? Is the stock poised to rise further from here, or is a decline looking likely? Based on our machine learning engine, which analyzes Clean Energy Fuel’s historical stock price movements, the stock has a 51% chance of a decline over the next month, after rising by almost 15% over the last five trading days. See our analysis on Clean Energy Fuels Stock Chances Of Rise for more details.
So what’s the fundamental picture like for CLNE? The company is a leader in the renewable natural gas business, which is seeing a lot of interest given its low environmental impact. Sales of RNG are expected to scale up, driven by deals with the likes of Amazon AMZN , Total, and BP, as well as favorable regulation. The company is looking to go all-in on RNG, targeting 100% of its supply mix to come from the clean fuel in around five years, compared to just about 40% last year. Although Clean Energy Fuels’ performance over the last several years has been mixed, with the company posting little growth, things are poised to get better from here. Sales are projected to grow by about 10% each year over 2021 and 2022, per consensus estimates, with the company also likely to break even by 2022. The stock trades at a relatively high 5.5x forward revenue, but the company’s leading position in the RNG space, the sizable market potential, and regulatory tailwinds under the Biden Administration could make the stock worth a look. (see our update below for more details on CLNE’s business and outlook)
[6/1/2021] Why Clean Energy Fuels Stock Is Up 3.5x Over The Last Year
Clean Energy Fuels (NASDAQ: CLNE), a company best known for supplying natural gas, has seen its stock price rally by over 270% over the last 12 months, with the stock now trading at levels of close to $8 per share, although it remains down from levels of around $18 seen in February. This compares to the S&P 500 which is up by just about 37% over the last 12 months. The rally comes despite a weak financial performance, with the company recording no growth between 2017 and 2019 as sales stood at levels of around $340 million, with sales declining to about $290 million in 2020. Clean Energy Fuels has also remained largely unprofitable over its 14 years as a public company. However, the markets are valuing the company much more richly, with its P/S multiple, based on trailing sales, rising from 0.9x in 2017 to about 5.4x currently. So is Clean Energy Fuels stock still a buy? We think it is, for a couple of reasons.
See our analysis on What’s Driving Clean Energy Fuels Stock’s 270% Rally? for an overview of how CLNE’s key financial and valuation metrics have trended.
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Clean Energy Fuels is best known for its fueling network of over 540 stations across the United States, engaged in the supply of compressed natural gas, liquified natural gas, and renewable natural gas. However, much of the company’s surging valuation likely comes from its focus on expanding its RNG business. RNG is produced when organic waste from landfills, dairy farms, and other sources decomposes and releases methane gas, which is then further processed and purified. RNG is viewed as a clean fuel and is classified as a carbon-negative in states such as California, considering its feedstock such as dairy cow waste is a key source of greenhouse gas emissions, and by using this it takes more carbon out of the environment than it produces. This makes the fuel very attractive from an environmental standpoint and governments are incentivizing this via potentially lucrative federal and state-level renewable credits.
While about 40% of the Clean Energy Fuels gas sold in 2020 came from RNG, it is targeting a 100% mix of RNG at all its fuel stations within the next five years. Major corporations have also shown a lot of interest in the RNG space with Clean Energy Fuels recently signing deals to build renewable natural gas fuel facilities and infrastructure with energy giants Total (NYSE: TOT) and BP (NYSE: BP). While RNG is used predominately in the transportation sector, powering heavy vehicles, it could eventually be used for electricity generation and even as a raw material for hydrogen production, giving it a massive addressable market.
The outlook for Clean Energy Fuels financials is also looking better. Sales are projected to grow by about 10% each year over 2021 and 2022, per consensus estimates, with the company also likely to break even in 2022. Now although a 5x plus forward revenue multiple is somewhat high, the company’s leading position in the renewable natural gas space, the sizable market potential, regulatory tailwinds under the Biden Administration, and the recent correction make the stock worth a look.
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