Why Bloom Energy Stock Just Crashed
Key Points
The S&P 500 is down 1.5% in afternoon trading.
Bloom Energy stock is down much, much more, and on no obvious bad news.
The reason: Valuation.
- 10 stocks we like better than Bloom Energy ›
Bloom Energy (NYSE: BE) stock, which makes hydrogen fuel cells for powering artificial intelligence data centers (among other uses) tumbled 20.2% through 2:22 p.m. ET on Thursday -- for no obvious reason.
Investors are understandably nervous about that, so let's see if we can explain what's going on.
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What's going on with Bloom Energy stock
Bloom Energy reported Q3 earnings last month, and the news wasn't half bad. Revenue rose 57% year over year, gross margins popped more than 5 full percentage points, and Bloom reported an operating profit.
It was actually good news all around. Unfortunately, it wasn't quite as good as investors seemed to think it was, and they predictably overreacted and bid up Bloom stock more than 51% over the course of just a week or two.
The problem is, this overreaction left Bloom stock looking horribly overvalued, and it's been selling off in dribs and drabs ever since. Although Bloom Energy is profitable, Bloom stock costs more than 16 times sales today, and more than 1,500 times trailing earnings. At such a heady valuation, it didn't take a genius to figure out that Bloom stock was overvalued and deserved to be sold.
(And yes, I said at the time that you should sell Bloom stock.)
Is Bloom Energy stock still a sell?
Notice that I said Bloom stock costs 16 times sales -- present tense, today. And 1,500 times earnings today, too. The stock was even more expensive before today's sell-off, but it remains overvalued today.
Long story short, yes, the stock market in general is down today, with the S&P 500 off about 1.5%, and stocks on average look pricey. The reason Bloom Energy stock is down so much more than average is that it's so much more overpriced -- and vulnerable to fall even more.
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Rich Smith 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.
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