Is Clean Energy Fuels (NASDAQ:CLNE) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Clean Energy Fuels Corp. (NASDAQ:CLNE) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Clean Energy Fuels

What Is Clean Energy Fuels's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Clean Energy Fuels had debt of US$264.1m, up from US$145.0m in one year. On the flip side, it has US$243.5m in cash leading to net debt of about US$20.6m.

A Look At Clean Energy Fuels' Liabilities

The latest balance sheet data shows that Clean Energy Fuels had liabilities of US$144.5m due within a year, and liabilities of US$368.8m falling due after that. Offsetting these obligations, it had cash of US$243.5m as well as receivables valued at US$127.7m due within 12 months. So its liabilities total US$142.1m more than the combination of its cash and short-term receivables.

Clean Energy Fuels has a market capitalization of US$634.6m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Clean Energy Fuels can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Clean Energy Fuels made a loss at the EBIT level, and saw its revenue drop to US$413m, which is a fall of 4.3%. We would much prefer see growth.

Caveat Emptor

Importantly, Clean Energy Fuels had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$30m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$12m of cash over the last year. So suffice it to say we do consider the stock to be risky. For riskier companies like Clean Energy Fuels I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.