I rarely recommend shorting a stock, here or elsewhere, for a few reasons.
First, short selling doesn’t fit my personality. I like to think of myself as a positive person, and many years ago, I vowed that I would not let any part of my life, personal or professional, be ruled by fear. Shorting is a negative thing by its very nature and is often based on fear, so it is just not something with which I am comfortable.
More important than its effect on my fragile feelings, though, selling a stock short always comes with significant risk. The potential losses when you short a stock are literally infinite. If you buy something and it goes to zero, you lose what you paid for the position, but if you sell something short and it keeps going up, you can lose many times your initial stake. Of course, that is manageable, at least to some degree, for those who set and stick to stop loss orders when running a position, but if you have ever canceled a stop when a price got close, think long and hard before entering a short position in a stock.
Then there is something that I have mentioned here before: if a price looks “wrong” to you, it is far more likely that you have missed something than it is that the entire market has got it wrong and you are right.
Still, with all that said, I believe there is one very popular energy stock that should be shorted at current levels…Bloom Energy (BE).
If you are a regular reader and have a long memory, you might remember…
I rarely recommend shorting a stock, here or elsewhere, for a few reasons.
First, short selling doesn’t fit my personality. I like to think of myself as a positive person, and many years ago, I vowed that I would not let any part of my life, personal or professional, be ruled by fear. Shorting is a negative thing by its very nature and is often based on fear, so it is just not something with which I am comfortable.
More important than its effect on my fragile feelings, though, selling a stock short always comes with significant risk. The potential losses when you short a stock are literally infinite. If you buy something and it goes to zero, you lose what you paid for the position, but if you sell something short and it keeps going up, you can lose many times your initial stake. Of course, that is manageable, at least to some degree, for those who set and stick to stop loss orders when running a position, but if you have ever canceled a stop when a price got close, think long and hard before entering a short position in a stock.
Then there is something that I have mentioned here before: if a price looks “wrong” to you, it is far more likely that you have missed something than it is that the entire market has got it wrong and you are right.
Still, with all that said, I believe there is one very popular energy stock that should be shorted at current levels…Bloom Energy (BE).
If you are a regular reader and have a long memory, you might remember that seven months ago, in June of last year, I recommended buying Bloom. I said then that their on-site fuel cell type generators stood out from the competition for a few reasons, and that they would appeal to companies building server and data centers as an alternative to depending on America’s somewhat creaky electric grid. That opinion has obviously become more mainstream, based on what has happened to BE since I wrote that piece…
Back then, BE was trading at around $20, a far cry from the $150 that it touched this week. I said in June that buying and holding the stock for a few years might be smart, but I really didn’t see it jumping this far, this fast.
That has come as the company has consistently beaten estimates for everything: EPS, revenue, and growth. On that basis, and given the potential that is still there, the move up makes sense. However, looking at the numbers, it seems to have gone too far, too fast. Growth stocks often have high P/Es, but BE’s trailing multiple of just under 1,900 is way beyond high. I get it, they are growing, but not that quickly! For context, Amazon (AMZN), probably the ultimate growth stock that went on to dominate multiple industries and sectors, has a historical high P/E of 563 in December of 2015. The forward P/E looks a little more reasonable, at around 175, at least until you realize that that is after just about every analyst that covers the stock has scrambled to raise their estimates significantly.
My overall view of BE’s prospects hasn’t changed that much since June, but do you really think that they will turn out to be three or four times more dominant or more profitable than Amazon on a comparative basis? I guess they could, but it is unlikely, to say the least. Even if they eventually do, that is a long way off, and current pricing suggests that it is imminent.
This is a case of one stock becoming the poster child for a compelling investment theme…powering the AI transition and getting massively overbought as a result. So, having bought at just above $20 back in June, I am now selling, and not just squaring up my position. The move is so overdone that I am actively shorting BE as well, even though it goes against both my nature and my learned risk aversion.
