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Why Hydrogen Stocks Soared This Week
Actions of hydrogen companies had an incredible week, with investors moving back into riskier assets and some strange trading dynamics hitting the market at the start of the week. In addition to the strange trade, a $1.7 billion conditional loan guarantee is helping the industry.
According to data provided by S&P Global Market Intelligenceactions of Connect power (NASDAQ: PLUG) rose up to 32%, FuelCell Energy (NASDAQ: FCEL) rose 21.4%, and Flourish Energy (NYSE:BE) rose 9.9% at its peak. The three stocks were up 30.1%, 19.6% and 9.6%, respectively, as of 1pm ET on Friday afternoon.
The compression of hydrogen stocks
At least part of the move this week was due to a short squeeze in stocks. On Monday, Reddit The Roaring Kitty personality made a comeback and caused traders to speculate that there might be minor restrictions on some stocks. This caused dozens of stocks to make big moves higher, and as heavily shorted stocks, Plug Power, FuelCell Energy, and Bloom Energy were some of the beneficiaries of this speculation.
PLUG Fluctuation Percentage Short Chart
It hasn’t hurt that interest rates are also declining, which makes it easier to finance projects over decades, which will eventually happen to utility companies.
10-Year Treasury Rate Chart
10-Year Treasury Rate given by Y Charts
But the biggest news came from the Department of Energy.
Plug Power’s $1.7 billion deal
On Wednesday, Plug Power announced a $1.7 billion conditional loan guarantee for six hydrogen facilities across the country. This will help the company and buyers obtain better financing deals in a structure that has been used for years in renewable energy.
Government support for hydrogen is positive for the industry, but it does not mean that these companies will be profitable. If you look at the long-term net profit graph, history tells us that even sales growth doesn’t translate into better profits.
PLUG Net Income (TTM) Chart
Projects can be financed with government assistance, but unless the equipment can be sold profitably and products can be produced economically, it doesn’t really matter how many guarantees these companies get.
I do not believe that any loan guarantee will result in profits in the hydrogen sector.
Are Hydrogen Stocks a Buy Now?
After the recent surge, I think now is the time to exit hydrogen stocks. Stocks are recovering from recent lows despite any real, fundamental change in their fortunes. Each of these companies is having trouble making money and there is nothing in this week’s news that will change that.
I think the challenge for everyone will be to continue financing operations that have been so unprofitable for so long. Hydrogen is a great idea, but it lacks adoption in the vehicle market, long-distance road transport and even in large-scale projects. This makes it difficult to build a large-scale business, which is ultimately what they need to do. And without that scale and no sign of profits, I’m selling hydrogen stocks.
The story continues
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The motley fool has a disclosure policy.
Why Hydrogen Stocks Soared This Week was originally published by The Motley Fool