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Highlights
- Investors across the globe are flocking to companies that are engaged in producing fuel without emitting carbon into the atmosphere.
- Analysing trends in earnings growth is a good indication that the company is doing something right.
- Green hydrogen is produced by the electrolysis of water while blue hydrogen is produced using auto thermal reforming or by steam methane reforming.
Hydrogen stocks have become market darlings amid the ongoing green energy boom. With governments and industrial segments embracing hydrogen-based energy, hydrogen stocks have soared to lofty valuations.
An unprecedented rally in hydrogen stocks may extend in upcoming times, as investors across the globe flock to stocks, engaged in producing clean fuel without emitting carbon into the atmosphere. The hydrogen industry was not so popular until recently due to the relatively small industry size. However, incumbent hydrogen companies need to scale up their commercial operations to cater to needs of the future. Interestingly, the sector has emerged as one of the fastest growing sectors globally with significant investment and participation by worldwide governments and financial institutions.
Related read: Hydrogen as a fuel
Against this backdrop, if one wants to try a hand at hydrogen stock picking, it's essential to complete your homework. Thorough research along with reviewing of stock's fundamentals are required to test the viability of the stock to determine if it is worthy to make a place in your portfolio. Since investment in green stocks is also done with an intention to support the global climate change cause, it must be thoughtfully tested that how much "green" a company actually is.
Earnings Growth
Earnings growth | Source: © Alexandersikov | Megapixl.com
Earnings from shares of a company are the primary objective of investing, therefore analysing trends in earnings growth is a good indicator if the company is performing well or not. Investors must check quarterly and annual financial reports of the company.
Companies that show positive earnings growth trends are considered to be more financially and operationally stable. One can also research projects the company is taking to enhance its earnings.
Related read: A lens over seven ASX-listed power-packed clean energy ETFs
Green or Blue hydrogen stocks
Green and Blue hydrogen are the two main types of hydrogen fuels that encompass different environmental impacts. Green hydrogen is produced by the electrolysis of water into hydrogen and oxygen using renewable energy sources. On the contrary, blue hydrogen is produced using auto thermal reforming or steam methane reforming to produce carbon dioxide and hydrogen. The production of blue hydrogen is not an eco-friendly process and produces significant emissions.
Long-term strength
The stock market is volatile in nature. At some point, the company may lose its value in the market. Keeping those circumstances in mind, it is necessary to consider the long-term stability of the company. The trendline of the company should be smooth and head higher. Investors must look into the company's alternative projects and the utilisation of earnings. Investors should consider how the company is growing its revenue, maintaining debt levels, and positioned as per current trends in the hydrogen industry.
Related read: Eight ASX listed hydrogen stocks under the spotlight amid the ongoing green buzz
Management and Board Leadership
Effective leadership | Source: Copyright © 2021 Kalkine Media
The evaluation of executive leaders of a company is a more valuable assessment than any other technical parameter. Companies that invest their profit in their growth increase their stability in the industry. It must be analyzed what kind of expertise executives are bringing into the board room.
Related read: Pure Hydrogen’s (ASX:PH2) upbeat gas flow results take share price zooming
Bottom Line
A rapid growth in the adoption of hydrogen energy in both public and private sectors has prompted investors across the globe to take active positions in hydrogen stocks. However, investors must complete their homework effectively before investing to secure good returns.
