Overvalued stocks can be difficult to identify. They’re frequently masked under the pretense of hype — or even cheap valuations, when they in reality, they face a frightening amount of risk…
Being able to spot bad investments is just as important as being able to spot good ones. Today, let’s look at why a green hydrogen fuel-cell company, a much-hyped pot grower, and a bargain 5G telecommunications network provider are among the most overvalued stocks investors should avoid in 2021.
1. Plug Power
In 2020, Plug Power‘s (NASDAQ:PLUG) gross billings increased by 42.5% to $337 million from a year ago. The green energy hydrogen company also has over $5 billion of cash and investments to fund its operations, with a guidance of $475 million in gross billings this year. Its Rochester, New York fuel cell production site will also come online this year, with a maximum output of 1 gigawatt per year. So why might the stock not be a buy?
As it turns out, green hydrogen fuel cells are increasingly being made obsolete by lithium-ion batteries, the costs of which have declined by as much as 88% over the past decade. Meanwhile, green hydrogen is extremely expensive to produce and transport, and are a bit lackluster in terms of energy efficiency.
Producing just 1 kg of normal hydrogen requires burning coal, which releases tons of carbon dioxide into the atmosphere as a by-product. Manufacturing green hydrogen works by applying an electric current to water to separate it into its hydrogen and oxygen components, and then capturing the hydrogen.
But for the energy to be green, that electrical current needs to come from a renewable energy source, which is still somewhat inefficient compared to the regular process of using fossil fuels to produce hydrogen. To make matters worse, cars running on hydrogen fuel cells already have as much as four times the fuel cost each year as those running on electricity. So, until going green gets a bit cheaper, investors should note that Plug Power’s technology has little competitive edge over lithium-ion batteries.
Plug Power currently trades for 34 times sales (P/S). Although that might seem cheap in the context of its own past (it once traded around 75 P/S), the company just recently announced it was facing accounting issues and needs to restate its financials going back to 2018. It is also in danger of not filing its 2020 10-K accurately or on time. It’s a good rule of thumb to avoid initiating a position in a company if you cannot fully trust its statements. I recommend investors avoid the hype and check out some electric vehicle battery stocks instead.
2. Sundial Growers
Sundial Growers (NASDAQ:SNDL) is a marijuana company that is struggling to make ends meet. Instead of taking drastic steps to cut its losses, however, the pot grower has gotten into the habit of turning to the capital markets for cash. In July 2020, the company had less than 200 million shares outstanding. By March of this year, that number had grown to 1.66 billion.
While Sundial now has a market cap of $1.85 billion and a cash balance of…
Continue reading at THE MOTLEY FOOL