Is Clean Energy Fuels Stock Worth A Look After Recent Sell Off?

Clean Energy Fuels (NASDAQ: CLNE), a company best known for collecting and transporting renewable natural gas that is produced from the animal waste collected at dairy farms and related sources, has seen its stock rally by about 10% over the last month driven by interest from Reddit traders. However, the stock has corrected a bit, declining by about 7% over the past week and by around 15% over the last two weeks. The recent decline comes on account of share issuances as well as news that the company’s largest shareholders, Total Energies, reduced its stake by over 10 million shares. So is the stock likely to correct further, or is a rally looking more likely? Per the Trefis Machine learning engine, which analyzes historical stock price data, CLNE stock has a 52% chance of a rise over the next month. See our dashboard analysis on CLNE Stock Chances Of Rise for more details.

So is CLNE stock a buy for longer-term investors?  Although Clean Energy Fuels’ performance over the last several years has been quite mixed, with the company posting little or no revenue growth, we think that things are poised to only get better from here. Sales are projected to grow by about 10% each year over 2021 and 2022, per consensus estimates, driven by growing demand for the company’s renewable natural gas, which can be used to power heavy-duty trucks and buses while effectively producing negative greenhouse gas emissions. The company is looking to improve its RNG production, from just about 40% of its total fuel supply mix last year to 100% over the next five years by investing in its RNG value chain. Clean Energy Fuels is also poised also benefit from favorable regulation as well as deals with top energy companies such as Total, and BP, and retail behemoth Amazon. Although the stock trades at a relatively high 7x forward revenue, the company’s leading position in the RNG space, the sizable market opportunity, as well as potential regulatory tailwinds under the Biden Administration could make the stock worth considering.

[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.

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 (CNG),  liquified natural gas (LNG), and renewable natural gas (RNG). 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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