Great article on FUEL CELL HYPE -->
Fueling the hype
By J.P. Vicente
Red Herring
July 3, 2001
This article is from the July 15, 2001, issue of Red Herring magazine.
For technology investors, the word "bubble" is perhaps the most nauseating in the English language. The Internet and optical bubbles both burst in such spectacular fashion in 2000 that you'd think weary investors would be immune to hyped stocks by now, right? Wrong.
The alternative-energy sector -- with many firms sporting little revenue and often no earnings -- appears to be the next bubble in the making. Although California's energy crisis has heightened public awareness about the need for new sources of energy, investors' infatuation with the stocks in this sector is eerily reminiscent of the early stages of the Internet.
Among a basket of 19 alternative-energy firms that we compiled, the average trailing price-to-sales ratio is an astounding 355, compared with just 1.7 for firms in the S&P 500. The companies we selected range from those as small as Beacon Power (Nasdaq: BCON), with trailing 12-month revenue of $50,000, to Power-One (Nasdaq: PWER), with $604 million in sales.
Those 19 stocks rose an average of 80 percent in the two years ended in May, compared to a 21 percent drop in the Nasdaq during the same period. Venture capital funding in the sector jumped from $517 million in 1996 to $1.2 billion in 2000, according to Thomson Financial/Venture Economics, a research firm. And a search in the LexisNexis media database unveils that the number of articles written about alternative energy more than tripled between 1996 and 2000.
NO KNOW
Meanwhile, Wall Street coverage of alternative-energy stocks has soared. FuelCell Energy (Nasdaq: FCEL), for example, had 1 analyst covering the company in 1996; today, it has 20, according to Thomson Financial/First Call. Plug Power (Nasdaq: PLUG) had 5 analysts covering the company when it went public in October 1999; currently it has 12.
"While there's a lot of excitement about this sector, there may not be too much knowledge of the subject matter," says Maurice Schoenwald, portfolio manager of the New Alternatives Fund.
One unfortunate by-product of this newfound interest in the sector, Mr. Schoenwald says, is a higher level of volatility in the stocks. It's a phenomenon that's been noticed among Wall Street's most skeptical bunch: the short sellers.
Short interest in Ballard Power Systems (Nasdaq: BLDP), a company best known for developing fuel cells for the auto industry, surged from 575,463 shares in October 2000 to 4.2 million shares in mid-June 2001. Same story at Capstone Turbine (Nasdaq: CPST), a maker of microturbines, which saw short interest on its stock go from 117,212 shares in July 2000 to 3.9 million shares in mid-June 2001.
Don't get us wrong. We do think that alternative sources of energy have the potential to replace fossil fuel in the long run. But with valuations at sky-high levels, prudence is recommended. When bubbles burst, as we learned from the dot-com debacle, irrational exuberance can quickly turn into mindless selling. |
