Buy low, sell high -- it's the dream of every investor in every stock, ever. But it's easier said than done, and crystal balls are in short supply. Luckily, investors in Bloom Energy(NYSE: BE) stock have something almost as good as a crystal ball: clear projections from management, and clear forecasts laid out by Wall Street analysts, that give us a clear idea where Bloom Energy stock should be in three years.
Do you hope to buy the biggest hydrogen fuel cell company in the U.S. by both sales and market cap? Are you willing to invest for the long term? Before buying, it's probably a good idea to consider these numbers.
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Where Bloom Energy stock is today
Bloom Energy released its third-quarter earnings just a couple weeks ago, and the news was not great. Not only did Bloom miss analyst forecasts for sales -- and not by a little: Bloom reported sales more than $50 million below estimates. Bloom also reported a pro forma loss for the quarter, where Wall Street had predicted a profit.
Crazy as it may sound, though, investors did not sell off Bloom Energy stock after earnings. To the contrary, in the two weeks and change since Bloom reported its miserable Q3 numbers, the stock has more than doubled.
Now, why is that?
Bloom's business boom
Two factors lie behind Bloom Energy stock's surprising success since reporting its earnings miss: profit margin, and contracts.
On the margin front, as recently as just a couple of years ago, Bloom Energy was reporting a gross profit margin in the low teens. One year ago, in Q3 2023, the margin even dipped into negative numbers. But my, how times have changed.
While not yet reporting positive net profits, over the past four reported quarters, Bloom has reported consistently positive gross profit, and as the company cuts costs, its operating margin, too, is just a few points away from positive. If Bloom can keep growing revenue, and achieve slightly better efficiencies of scale, it's not out of the question that the company might soon report an honest-to-goodness net profit from its business.
So how does Bloom grow revenue? By signing contracts, of course. And the good news here is that Bloom just signed two big ones. On Nov. 7, concurrent with earnings, Bloom announced a deal with South Korea's SK Eternix to build "the world's largest fuel cell power system and make it operational in 2025." One week later, Bloom signed a deal with AEP that's 12.5 times bigger. Starting with a 100 megawatt (MW) order of fuel cells, Bloom says AEP intends to eventually buy a full gigawatt's worth of its fuel cells (that's 1,000 MW) for use in powering artificial intelligence data centers.
What analysts think Bloom Energy will earn in 2027
Bloom didn't say exactly how quickly it will supply the remaining 900 MW of fuel cells to AEP. Management did indicate it expects follow-on orders in 2025 and is preparing to support "rapid" power supply needs at AEP's data center customers.
At S&P Global Market Intelligence, analysts are already updating their forecasts and predicting Bloom's sales will roughly double over 2023 levels by 2027, to $2.6 billion. Operating profit, which is expected to flip from negative to positive as early as next year, could approach $320 million by 2027. And on the bottom line, Bloom is expected to earn more than $1 per share in net profit.
Is Bloom Energy stock a buy?
This month's contract wins cement Bloom's status as the most successful of the fuel cell companies, which include names both better known, such as Plug Power, and lesser so, including FuelCell Energy and Ballard Power Systems. If all goes as planned, Bloom won't just be the biggest fuel cell stock, and the one with the most revenue. It could easily end up being the only profitable fuel cell company in the country.
That said, $1 a share in profit three years down the road isn't a lot to support a Bloom Energy stock price that's close to $26 a share today. The resulting P/E ratio of 26 might be reasonable if it were based on profits Bloom Energy was already earning. The valuation proposition looks iffier when based on profit the company has not yet earned -- and might not in fact earn, if the AEP sales don't fully materialize. And even Bloom admits that AEP has only agreed to buy "up to" 1 GW of fuel cells, which contains the implicit warning that AEP might buy less.
All things considered, and in light of the fact this stock has already doubled over just the past few weeks, my hunch is that the easy money in Bloom Energy stock has already been won.
Go ahead and buy Bloom stock if you want to. But realize that you're probably buying at the top if you do so.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.
