Has Clean Energy Fuels Become the Perfect Stock?
Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Clean Energy Fuels (NAS: CLNE) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.
With those factors in mind, let's take a closer look at Clean Energy Fuels.
Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
Growth | 5-Year Annual Revenue Growth > 15% | 26.2% | Pass |
1-Year Revenue Growth > 12% | 38.2% | Pass | |
Margins | Gross Margin > 35% | 26.0% | Fail |
Net Margin > 15% | (16.3%) | Fail | |
Balance Sheet | Debt to Equity < 50% | 53.2% | Fail |
Current Ratio > 1.3 | 3.68 | Pass | |
Opportunities | Return on Equity > 15% | (9.9%) | Fail |
Valuation | Normalized P/E < 20 | NM | NM |
Dividends | Current Yield > 2% | 0% | Fail |
5-Year Dividend Growth > 10% | 0% | Fail | |
Total Score | 3 out of 9 |
Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.
Since we looked at Clean Energy Fuels last year, the company has lost a point. The alternative-energy company has seen continued growth, but it's also pulled more debt onto its balance sheet as a result.
Low natural gas prices have many gas producers struggling. Even as Chesapeake Energy (NYS: CHK) and several of its peers have started shutting down production in an attempt to curtail supply, the glut of gas on the market as a result of shale gas drilling and blockbuster energy production methods shows no sign of dissipating.
But Clean Energy is among those trying to take advantage of low prices to create opportunity. With its proposed network of natural-gas filling stations, Clean Energy could make natural gas a viable transportation fuel, greatly boosting demand. Moreover, as natural-gas engines from Westport Innovations (NAS: WPRT) , Cummins (NYS: CMI) , and potentially other manufacturers come onto the market, it'll get easier for truckers and other high-use consumers to go the natural-gas route.
With green energy being a major initiative lately, Clean Energy's competition may come from other equally interesting fuels. For instance, AeroVironment (NAS: AVAV) has been pushing its electric charging stations as plug-in hybrids also become more viable. Yet with the transition to natural gas easier from a vehicle engineering standpoint, Clean Energy should have the advantage for now.
To keep improving, Clean Energy needs to start making its plans a reality. If Clean Energy can move toward completing its network in the next few years, it could make a huge difference in pushing its stock toward perfection.
Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.
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At the time thisarticle was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services have recommended buying shares of Clean Energy Fuels, Cummins, AeroVironment, Westport Innovations, and Chesapeake Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
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