Canada’s Ballard Power (BLDP) (TSE:BLDP), the longstanding fuel-cell manufacturer whose first brush with fame came during the dot-com bubble near the turn of the century, has been a decades-long disappointment for investors. Near-term prospects aren’t any brighter, as the company announced a restructuring to reduce costs “amid a slowdown in hydrogen infrastructure development and delayed fuel cell adoption.” However, I hold a Bullish rating on BLDP, especially for patient investors, on the strength of its balance sheet until greater fuel cell adoption occurs.
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Although I have a positive outlook on the stock, it does have a history of disappointment. Ballard’s market cap has twice reached the $10 billion mark, albeit aided by periods of investor exuberance in 2000 and then during the 2021 short-squeeze market. Meanwhile, the high point for annual revenues was just around $120 million, and that was in 2017. On the back of management’s downbeat guidance, analysts are expecting Ballard to post just $75 million in revenues for FY2024.
Nevertheless, the company hasn’t been without its successes, especially in the bus market. In April 2024, Ballard signed its largest fuel cell order in company history with a European bus manufacturer, followed shortly by a separate deal with a UK bus manufacturer, and the company has had a series of contracts with its compatriot Canadian firm New Flyer, proudly based in the author’s hometown of Winnipeg. For the record, New Flyer isn’t a fledgling operation and supplies buses across North America to large metropolitan areas, including New York.
Still, none of this has been enough to lead Ballard to prosperity. The restructuring, though a disappointing signal on prospects, has been long coming. Ballard was built for the big time and was never designed to be profitable with revenues in the $100 million range. This was supposed to be a growth business, not one where fat needed to be cut before the cherished land arrived.
Balance Sheet and Long Runway
I remain bullish on Ballard despite its weak near-term prospects. That’s due to a belief in the future of fuel cells and Ballard’s fortress balance sheet. At last report, the company had $637 million of cash & equivalents, far outrunning its balance sheet of just under $400 million. This is a company that, prior to the recent restructuring efforts, was burning about $30 million of cash per quarter. At that rate, it would take 2 years before the cash fortress shrunk to BLDP stock’s current market value.
However, that cash burn rate seems likely to decrease as Ballard attempts to resize its cost structure. The company was planning to build a gigafactory in Texas as recently as 8 months ago, but in the Q3 earnings call, Ballard management was non-committal, announcing, “We have also repositioned our previously planned Texas gigafactory expansion program to an optionality plan, where we will defer our final investment decision to 2026 pending clear market adoption and demand indicators.”
I personally believe that Ballard management is saving face by not doing a full U-turn on the gigafactory plan, but I no longer expect this project to be built. I commend Ballard management for opting to rightsize their business amid meager growth prospects in the short term.
Operating Results
As alluded to, Ballard Power has been operating unprofitably. The closest it has come to breakeven was during the revenue peak year of 2017, when its operating loss landed at -$4.4 million. For most of the past decade, Ballard has at least been posting positive gross margins, but that has no longer been the case for the past 9 quarters. This isn’t a reason for shareholders to lose hope, in my view, at least not at today’s bargain-basement valuation.
The TTM (twelve trailing month) results look horrible, with just $91 million of revenues against -$175 million of operating losses. That suggests its costs are about 3x as high as revenues. That’s clearly not sustainable, but the company has time, and the restructuring will buy the company even more time than it had previously.
Long-Term Prospects
I believe that fuel cell technology has a formidable future in transportation infrastructure. The industry is also not necessarily incompatible with the electric vehicle revolution, and fuel cells may end up powering large-scale EV recharging stations in the future.
Adoption has been slow, and a second Trump administration may not help fuel-cell prospects, but everything is up in the air when it comes to the incoming U.S. president. It’s rarely certain where Donald Trump will plant his flag. Thankfully, Ballard should be around for the long game. As mentioned, the company has cash liquidity that may last into the next decade, along with a long history of expertise and key patents.
How Do Wall Street Analysts Rate BLDP?
Par for the course, Wall Street has a wait-and-see view of Ballard Power stock. Of the 12 analysts that cover Ballard, there is only one Buy rating against seven Hold ratings and four Sell ratings. The average BLDP stock price target, however, is $2.66, and that represents 81% upside potential from the recent share price.
Ballard Power stock has fallen more than 60% year-to-date, and near-term prospects look poor. However, BLDP shares offer a great deal of optionality, given their low price and the company’s very long cash runway. An investment in BLDP could serve patient investors very well.
BLDP trades at a P/B of under 0.6x, which represents a 10-year low. The large cash position leads the stock to carry a negative enterprise value. This is truly deep-value territory. While it’s possible that BLDP stock may experience further declines during the tax-loss selling season, it’s always hard to time the bottom. But regardless of when that bottom arrives, I have a Bullish rating on BLDP.
