Share price as of Friday's close:

$5.29

Share price now:

$6.10

Change:

15.3%

Volume:

2.9 million shares, daily average 512,900 shares

Last time this high:

Sept. 19, 2005

52-week high:

$8.04

52-week low:

$4.28

Forward P/E before announcement:

n/a

Forward P/E after announcement:

n/a

A FUEL-CELL DEVELOPER'S

stock gains on Tuesday seemed to be powered by little more than hot air.

Ballard Power Systems shares jumped as much as 22% intraday before closing up 15% at $6.10. Trading volume of 2.9 million shares was six times the average. Yet neither the company nor industry observers could pinpoint the reason behind the heady rise. Ballard didn't release any news to the public on Tuesday.

"I haven't heard anything, and I have no idea why the stock is moving," says Brian Piccioni, an analyst at BMO Nesbitt Burns, a Toronto investment bank. (BMO Nesbitt Burns has an investment-banking relationship with Ballard Power Systems.)

One Ballard official who asked not to be named couldn't explain the move either, but noted there's been positive momentum in the fuel-cell sector lately. The company is scheduled to release its fourth-quarter and full-year financial results after the market closes Wednesday.

Some postings on Internet message boards devoted to the stock suggested Ballard was mentioned on CNBC's "Mad Money" show Monday night. It wasn't. In fact, it was a repeat broadcast.

"I have no clue as to why it's moving," says Jarett Carson, an analyst at RBC Capital Markets, a New York investment bank. "However, President Bush is out on the road talking about alternative energy. The fact that a Texas oil man is talking about renewable energy is unusual. That is the closest thing I can see at this point that may be driving the stock." (RBC Capital Markets has an investment-banking relationship with Ballard Power Systems.)

On Tuesday, Bush spoke at the National Renewable Energy Laboratory in Golden, Colo., about the need to reduce the country's reliance on foreign oil, an issue he highlighted in last month's State of the Union address. Specifically, the president said the U.S. needs to increase federal funding for producers of alternative energy sources. The currently available technologies mentioned were nuclear power, solar and wind energy, hybrid-energy automobiles and gasoline consisting of 85% ethanol, a fuel produced mostly from corn.

But what may have struck Ballard's investors was Bush's mention of hydrogen fuel cells as a possible long-term solution. This followed a speech Monday about energy initiatives, in which the president mentioned that the federal government was spending $1.2 billion over the next five to 10 years for hydrogen research.

Investors seem to be betting that Ballard, as what analysts call the most technically advanced company in the hydrogen fuel-cell industry, will land a sizable amount of funding. Based in Canada but with operations in the U.S., Ballard develops so-called proton exchange membrane, or PEM, fuel-cell technology. Essentially, the fuel cells break down hydrogen ions into smaller parts, protons and electrons, which are combined with oxygen to produce electricity. The main byproducts are water and heat, which is why environmentalists and others tout fuel cells as "clean" technologies. The hydrogen that is fed into the fuel cells is derived from fossil fuels like natural gas and petroleum.

Ballard's products are aimed at running stationary power plants and low-emissions vehicles. The company has produced prototypes for DaimlerChrysler and Ford Motor, but none has proved commercially viable yet. Its fuel cells currently power an experimental fleet of more than 130 vehicles, including 36 Mercedes Benz buses in Europe, Australia and China.

Some analysts liken Ballard to drug development companies, which often go years without profits before making a marketable product. But there's one key difference, says Piccioni of BMO Nesbitt Burns: "At least with a biotech, you have a reasonable assurance that there will be a market for the product should it get approved. In the hydrogen economy, there is no such assurance."

Founded in 1979, Ballard has yet to turn a profit. Neither the company nor analysts expect to see one soon. For the nine months ended Sept. 30, Ballard posted a net loss of $70.8 million, or 58 cents a share, vs. a loss of $120.3 million, or $1.02 a share, for the same period in 2004. Nine-month revenues plunged 41% to $36.1 million.

"The whole renewable energy sector is in an incentive led boom," says David Kurzman, managing partner of Kurzman CleanTech, a hedge fund company specializing in alternative energy companies. "The primary beneficiaries are solar, ethanol and select other technologies, but when it comes to Ballard specifically, this is a company not yet at the place with a commercially viable product to benefit from these incentives. So, I would argue that the recent move might be unwarranted."

For 2005, Ballard has predicted a cash burn of $60 million to $80 million. At the end of September, it had cash and short-term investments of $203.8 million, down from $240.2 million on Dec. 31, 2004. Long-term debt was $9.9 million. In October the company predicted its 2006 cash burn would drop to $50 million to $70 million.

Meanwhile, analysts say the Department of Energy's most optimistic projection indicates that it will take at least 10 years to develop a viable market for hydrogen fuel cells. Ballard's goal is to demonstrate commercially viable fuel-cell technology by 2010. After that, the company says, auto makers could have vehicles using the technology on the road within four years.

Quote:
"I'm not optimistic about the grander hydrogen economy scenario," says Piccioni of BMO Nesbitt Burns. "The most optimistic benchmark is the Department of Energy roadmap of all the things that need to happen to reach the target. And if everything happens correctly, it's 10 years in the future. But, if you think about it, when was the first time you heard about hybrid cars? Even DaimlerChrysler and Ford have taken a few steps that show that the degree of zeal they once had is less than it used to be. I believe there are a number of applications where the use of fuel cells probably makes sense, but probably not cars."