Bloom Energy stock warning: beware of Wyckoff and man reversion risks

Bloom Energy stock price has embarked on a strong bull run after years of consolidation. It has soared to a high of $176.76, up by over 2,250% from its lowest point last year. This rally continued on Monday after extending its deal with Oracle. Still, there is a risk that it may reverse soon since it is in the distribution phase of the Wyckoff Theory.

Bloom Energy stock soared after Oracle deal extension

The ongoing artificial intelligence (AI) boom is having a positive impact in some unlikely companies. For example, Bloom Energy, a company that provides on-site power, has gone parabolic as the data center build-up continues. 

In a statement on Monday, Bloom Energy said that it would expand its relationship with Larry Ellison’s Oracle. The company is currently deploying its power resources as part of the initial 1.2 gigawatts. 

Therefore, the new agreement will see Oracle deploy up to 2.8 gigawatt as part of its expansion in the United States and the Stargate project. In a statement, a senior executive at Oracle said:

“By rapidly deploying Bloom’s reliable, efficient fuel cell energy, we are quickly meeting the demands of our customers across the United States. Together, Bloom and Oracle Cloud Infrastructure are building the power foundation and AI infrastructure to accelerate American AI leadership.”

Other large companies are leveraging Bloom Energy’s technology. Some of the most notable ones are Intel, Conagra, FedEx, and Caltech. 

As a result, its revenue growth has been supercharged with the most recent results showing that its revenue rose by 37.3% in the fourth quarter to over $2.02 billion. This growth coincided with an improvement in its gross margins, which rose to 29%.

Analysts are upbeat about its growth momentum

Most importantly, the company’s backlog jumped to $20 billion, a figure that will continue rising as the data center build-up continues. Yahoo Finance data show that analysts are upbeat on the company’s growth trajectory. 

The average estimate among investors is that its annual revenue will jump by 57% this year to $3.18 billion, followed by 55% to $4.96 billion next year. These numbers mean that Bloom, a company that has been in the industry for years, has now become a growth stock.

The valuation reflects this, with the company having a forward price-to-earnings ratio of 119, much higher than the sector median of 19.8. As such, it will need to continue firing on all cylinders to justify the valuation.

Wyckoff Theory and mean reversion point to a BE stock retreat

BE stock chart | Source: TradingView

The weekly chart shows that the Bloom Energy stock price has gone through the different stages of the Wyckoff Theory. It remained in the accumulation phase between its IPO and August last year. In this, it remained between the support and resistance levels at $3.30 and $37.

The stock then “woke up” in August last year when it moved above the crucial resistance level. This marked its entry into the markup phase, which is characterized by parabolic moves and the Fear of Missing Out (FOMO).

As such, there is a risk that it may now be in the distribution phase, which will be followed by the markdown. 

At the same time, the stock has moved much higher than its historical moving averages. For example, it is significantly higher than the 100-week moving average at $71. As such, this is a sign that it may go through mean reversal, where an asset moves back to its historical averages. 

Therefore, the near term Bloom Energy stock forecast is bullish as its momentum continues. However, this may change in the coming months because of the Wyckoff and mean reversion risks.