It’s an exciting time again for clean energy stocks. 

#-ad_banner-#To take a couple of examples, the Guggenheim Solar ETF (NYSE: TAN) is up 160% in the past 12 months, and the PowerShares Global Clean Energy ETF (NYSE: PBD) is up 60%.  

But these gains pale in comparison to a group of small alternative-energy players that have generated some of the strongest gains of any stock in the past few quarters. 

When I first looked at these companies back in mid-February, they had already posted sharp gains. Since then, they’ve surged yet higher. In just the past seven weeks, they have risen on average around 65%.

At this point, a mea culpa is in order. When I looked at this group back in February, I singled out Ballard Power (Nasdaq: BLDP) and Capstone Turbine (Nasdaq: CPST) for further gains — but suggested that Fuel Cell Energy (Nasdaq: FCEL) and Plug Power (Nasdaq: PLUG) likely had more limited upside.

I noted that “It’s hard to see how these firms will ever generate robust profits, especially as they have several dozen rivals (most of which are privately held) pursuing the exact same niche.” Clearly, the broader market has no such concerns. 

You can sense the excitement for these stocks by looking at two key numbers: First, they are expected generate a combined $500 million in sales this year (and around $640 million in 2015) and sport a combined market value of around $2.5 billion.

A price-to-sales ratio of around 5 for this group is not unreasonable in the context of solid sales growth — as long as that sales base will eventually generate decent profit margins. 

To be sure, that was my logic in preferring Ballard Power and Capstone Turbine a few months ago. The market instead is currently focused on absolute sales growth levels for these firms right now. Three of them are expected to boost sales at a merely respectable pace in 2014, though Plug Power is on track for a whopping 145% sales growth this year and 80% sales growth in 2015, according to consensus forecasts. That helps explain why this stock is up 3,900% over the past year.

But it’s fair to assess the current expectations and valuations. After all, the 3-D printing stocks shot through the roof, only to come crashing back to earth once investors started to look more closely at these companies’ financials (especially 3-D Systems (NYSE: DDD)).

A closer look at Plug Power, which has already slid from a recent peak of $10 to $7, can help understand the risks and rewards of these businesses. 

As I noted a few months ago, Plug Power historically struggled to generate sales traction. The company’s products played a niche role in the field of non-road vehicles such as forklifts, where an ability to operate in a pollution-free manner in an indoor space was crucial.

Less than a year ago, this company started to see a higher pace of sales activity. Last July, management noted that backlog for its fuel-cell forklifts had risen above 1,000 units, setting the stage for a sharp uptick in sales in 2014. When the company announced quarterly results in November, management hinted that a series of new major contracts would be announced by year end. At the time, shares still remained below $1. 

A conference call held in early December was the key catalyst to really get this stock moving. In the past four months, Plug Power’s business has really taken off:

•  On Dec. 18, the company said FedEx (NYSE: FDX) had received $3 million from the Department of Energy to test Plug Power’s fuel cell systems in FedEx trucks.

•  On Jan. 2, the company announced $32 million in fourth-quarter orders, which is as much as the company has typically booked in a year. 

•  In mid-January, the company announced a more comprehensive platform, known as GenKey, which combines all hydrogen-powered drives, refueling systems and maintenance agreements under one contract.

•  By last month’s fourth-quarter conference call, Plug Power had said that backlog for 2014 deliveries already exceeded $60 million.

Clearly, the company’s painstaking market development efforts have really paid off: Sales are now expected to exceed $100 million next year. By then, the company is expected to earn a nickel a share. And that highlights to ongoing conundrum for investors. Plug Power’s systems may have a solid return on investment (ROI) for its customers, but they are not especially profitable to build.

So an investment in Plug Power is not about its potential for profitability, but instead it is the opportunity to scale up to a much higher revenue base. And for that to happen, the company will need to move past the forklift market, which is more crowded than most investors realize, and move into the fleet transportation market. That deal with FedEx is quite intriguing and should be the main focus for investors right now. 

Here again, some caution is warranted. Several major global automakers, including Toyota (NYSE: TM) and Volkswagen (OTC: VLKAY), are developing their own hydrogen-propulsion systems, and Ballard Power, not Plug Power, is a likely beneficiary of those developments.

Yet with shares of Ballard Power also surging nearly 80% since my review of the company six weeks ago, it’s hard to get excited about that stock anymore either. Net/net, these stocks would hold much more appeal if they went through a perhaps inevitable phase of consolidation, as the 3-D printing stocks have seen. 

Risks to Consider: As an upside risk, these companies continue to generate impressive new contract wins and may be positioned for upward revision estimates for 2015 sales as backlogs grow.   

Action to Take –> These companies are doing a solid job of achieving mainstream adoption for their technologies, which have finally become cost-effective. Yet there are dozens of companies, mostly private, working in this same area, meaning that pricing and margin pressures will always be evident. This is a great group to put on your watch list, as any major pullback would provide excellent entry points.

P.S. If the potential of hydrogen power has you excited, wait until you see what StreetAuthority’s Andy Obermueller has been working on. Andy has identified five “game-changing” trends with the potential to revolutionize the way we live our lives — and make early investors a killing. Among other things, these technological developments could eradicate the gasoline engine and change the face of transportation forever. To learn more about these developing technologies — and the companies behind them — follow this link.