Bloom Energy stock has slumped: buy the dip or sell the rip ahead of earnings?

Bloom Energy stock has retreated into a bear market, falling by 33% from its highest point this year. It dropped to $234 today, continuing a trend that started on June 25 when it reached a record high of $350. So, is this the start of a prolonged bear market or will it rebound soon?

Bloom Energy stock has dropped despite having key catalysts

Bloom Energy is a fast-growing company that uses Solid Oxide Fuel Cells (SOFC) technology to generate power that is used in key industries like data centers, oil and gas, utilities, and retail. 

Started over 25 years ago, the company’s popularity has surged during the ongoing data center boom. Companies in this industry like the fact that its products are easy to install, clean, and save costs over time.

Bloom Energy has inked major deals recently, including with companies like Oracle, Brookfield, Equinix, Nebius, American Power, Apple, and Medtronic. These deals have supercharged its revenue. Its annual revenue has jumped from $972 million in 2021 to $2.02 billion last year, and this growth is expected to soar.

The most recent numbers showed that Bloom’s revenue jumped by 130% in Q1 to $751 million. In other words, its Q1 revenue was nearly what it made in the four quarters of 2021. 

This revenue growth is expected to continue in the foreseeable future. Analysts tracking the company predict that its Q2 revenue will jump to $821 million from the $401 million a year earlier. 

Bloom Energy’s annual revenue is expected to soar to $3.75 billion this year followed by $6.43 billion next year. This means that it may have annual revenue growth rates of over 50% in the next few years.

READ MORE: Bloom Energy stock surges as Murrey Math Lines points to a rally to $300

Analysts are optimistic on BE stock

This growth rate explains why analysts have become highly bullish on the name, with Susquehanna raising its target from $293 to $298. UBS sees the stock hitting $350, while RBC Capital has a target of $335. The average stock target is about $282, higher than where it is today.

Still, with all this optimism comes with questions on valuation. Bloom’s market capitalization has jumped to over $73 billion, which is an enormous amount for a company whose income margin is about 0.25%. This likely explains why its short interest has jumped to 10%. 

One way to justify the valuation metric is to point at the company’s revenue growth and enormous market size. At the same time, Bloom Energy has a strong Rule-of-40 multiple as it is already profitable and has annual revenue growth of over 50%.

Will BE stock drop further or rebound?

Bloom Energy stock chart | Source: TradingView

The daily chart shows that the Bloom Energy stock has pulled back in the past few weeks, moving from $350 in June to $240 today. It has retested the crucial support that connects the lowest levels since April 28. This price coincides with the 100-day moving average.

Another positive is that it has formed a megaphone pattern, which is usually a bullish continuation sign. Therefore, there is a possibility that it will bounce back in the coming weeks, possibly towards its earnings on July 28. If this happens, there is a room for it to retest the all-time high.

The alternative scenario is where it continues falling, retests the 200-day moving average at $183 and then rebounds.