In the latest disappointing news for the clean-energy sector, FuelCell Energy (FCEL) posted a wider-than-expected quarterly loss Wednesday, causing FCEL stock to tumble.
FCEL stock dropped more than 14% soon after the opening bell, as rising operating expenses overwhelmed the bottom line. It recovered some afterward, but remains down more than 8% today.
The drop in FCEL stock on quarterly results should come as no surprise to anyone invested in the exciting and revolutionary technology of electricity-generating fuel cells. FCEL stock, along with peers like Ballard Power Systems (BLDP) and Plug Power (PLUG) are notoriously volatile.
Indeed, FCEL stock, BLDP stock and PLUG stock have been stuck in a massive selloff since early May. After rallying anywhere from about 180% to 550% to start the year, all three names are caught in the downdraft of dashed expectations are a general flight from momentum stocks.
Ironically, FCEL stock was actually the one trading with the least amount of irrational exuberance. It never tripled or put up a sixfold gain earlier this year like BLDP stock and PLUG stock. But it did top out at just shy of $4 per share, and now it’s well below $2.
Sure, that was good for a gain of 45% for the year-to-date before Wednesday’s shellacking, but the trend only underscores that FCEL stock has more losses to come.
As exciting as these stocks may be, expectations were simply too high. True, BLDP had a quarterly loss that was narrower than Wall Street’s expectations. However, PLUG has racked up wider-than-expected losses for three quarters in a row, now.
It’s enormously expensive to build these businesses and scale this technology, and the costs continue to spring unpleasant surprises on the market.
FCEL Stock Hammered by Lower Sales, Margins
For the most recent quarter, FuelCell Energy reported a net loss of $15.8 million, or 7 cents per share, compared with a loss of $7.4 million, or 4 cents, in last year’s second quarter. On an adjusted basis, FuelCell Energy had a loss of 4 cents, wider than the 3-cent loss forecast by analysts, according to a survey by Thomson Reuters.
The top line also missed Wall Street’s estimates. Revenue fell to $38.3 million from $42.4 million, whereas analysts projected revenue to rise to $45 million.
The retreat in revenue only magnified higher costs in the quarter. Gross margin contracted sharply, as FCEL sold mainly lower-margin fuel cell kits and fuel cell modules. A year ago, FuelCell Energy sales were driven by higher-margin complete power plant revenue from the 14.9-megawatt Bridgeport fuel cell park project, the company said.
In addition to higher costs of revenue, operating expense rose 9.5% due to higher administrative and selling, and research and development expenses.
Lower sales and higher costs will pretty much always leave a bitter taste in the market’s mouth, especially after all the hype in FuelCell Energy earlier this year.
The future is likely bright for this sector, but investors clearly got ahead of themselves. At some point the shakeout will lead to more attractive valuations for FCEL stock, BLDP stock and PLUG stock.
But we’re not there yet. Valuations and expectations are still too high for these stocks.
Wednesday’s market action is on the money: FCEL stock is a sell.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.