Clean Energy Fuels Corporation (CLNE)

Clean Energy Fuels Corporation (CLNE) is an innovative company that intends to replace gasoline and diesel vehicle fuel with natural gas (natgas).  Natgas is reported as a cleaner and less expensive fuel option than the current widely adopted vehicle fuels.

CLNE is highly speculative.  It currently does not earn a profit and is attempting to transform an entire fuel market single-handedly.  In order to do so, CLNE has made big bets on the adoption of natgas fuel for trucking fleets by constructing a nationwide network of fueling centers.  However, the slow switch to natgas by long-haul trucking fleets has made this initiative highly unprofitable, so far.

It's not all bad news though.  CLNE has an established presence in air port transit (i.e. taxis and shuttles), refuse (i.e. trash trucks), and public transportation (i.e. busses).  In addition, CLNE recently partnered with NG Advantage to supply industrial and medical facilities, among others, with on-site natgas trailers for use in power generation.  The on-site natgas trailers replace fuel oil, which is more expensive, without the need to construct a physical pipeline to the facilities.

All-in-all, the established markets, slowly progressing markets, and new initiatives have brought CLNE closer to profitability.  CLNE has an established presence in this industry; however, it is not unforeseeable that a large oil & gas company can enter the market and disrupt CLNE's plans.  It is also not unforeseeable that a large oil & gas company can enter the market and quickly "catch up" by purchasing CLNE.

CLNE is speculative in the fact that it does not produce a profit.  Therefore, traditional valuation using PE and PEG ratios are not helpful.  Valuation by overall market capitalization is not overly useful, as CLNE is pretty much a one-man wolf pack in this industry.  I invest in CLNE knowing that it is a high-risk stock, but I believe strongly that cheaper and cleaner fuel is in-line with long-term trends in business and society.

What to watch for: Press releases of major deals, updates on CLNE's path to profitability, and oil prices.  CLNE issues periodic press releases summarizing the major fueling/construction deals they sign and how accretive the deals are estimated to be in terms of gallons sold.  These releases have a major short-term influence on the stock price.  Profitability is the major issue on investors' minds, so it is important to keep track of CLNE's progress through the quarterly earnings reports.  CLNE's stock price has had a high correlation to oil prices in the second half of 2014 and first half of 2015.  The spread between natgas and gasoline/diesel typically decreases when oil prices decline; however, this metric is not overly important for the long-term path to profitability of CLNE.

Common Cents Take: This stock is risky, volatile, and difficult to form strong conviction in.  However, the benefits of natgas as a fuel are in-line with long-term influences in business and society.  Therefore, the risk of owning CLNE is justified by the long-term prospects.