To say the past couple of years have been tough ones for owners of FuelCell Energy Inc (NASDAQ:FCEL) would be a massive understatement. They’ve been downright miserable, with FCEL stock pulling back from a September-2014 price of $32 to the current price around $5.28 per share … an 83% selloff.
What gives?
In short, the demand for this alternative source of electricity hasn’t lived up to the hype stirred up just a few years ago.
Part of the letdown can be attributed to the plunge in the price of oil, which subsequently lowered the price of competing energy sources like coal and natural gas. Much of the letdown, though, can be chalked up to the simple fact that fuel-cell power is still too unfamiliar and unproven to most would-be users.
Is there any chance FuelCell Energy could be on the cusp of getting the premise over these two humps?
What’s a Fuel Cell?
The science of fuel cells is a fascinating one. Rather than using combustion to create heat and pressure to turn a generator, a fuel cell produces electricity via a chemical reaction. Specifically, natural gas or a biomass gas reacts with oxygen, creating heat, water, and most important, electricity.
It’s not an especially new breakthrough. What is relatively recent, though, is the mass commercialization effort of the technology. FuelCell Energy, Ballard Power Systems Inc. (USA) (NASDAQ:BLDP), Plug Power Inc (NASDAQ:PLUG) and a handful of other stocks on the business that have only materialized in the past few years as the technology became refined enough — and accepted enough — to make a go of it.
Their foundation was largely in response to the proliferation of solar power as a mainstream energy source.
And like solar panels, hydrogen-powered fuel cells are usually erected on-site for a specific building. Also like solar panels, upfront costs for such systems and energy costs compared to grid-connected power can make the matter tricky.
There’s another curious reality for investors who regularly scour stock market news in search of fuel cell news — no major fuel cell company has ever turned a consistent profit, if they’ve ever turned one at all.
FuelCell Energy, however, still gives investors something to think about on that front.
Where FuelCell Energy Differs
Take anything said about a company from that company with a grain of salt. But, FuelCell sees a profit on the horizon.
The premise has been floating in the market’s ether for years now, but when the matter came up earlier this year, the timbre seemed a bit different. That is, FuelCell Energy CEO Chip Bottone thinks his company will be profitable when it’s installing 80 megawatts worth of fuel cell energy capacity per year.
For perspective, last quarter, FuelCell installed 16 megawatts worth of fuel cell systems… an annualized pace of 64 megawatts.
Don’t get too excited just yet. Revenue was essentially flat on a year-over-year basis last quarter, and the net loss widened from $10.7 million to $16.2 million. Revenue has also been broadly trending lower since 2013.
Still, the organization has a couple of aces up its sleeve.
One of them is a fairly new relationship with Exxon Mobil Corporation (NYSE:XOM). The David & Goliath team-up will develop carbon-capture technologies, specifically looking for ways to reduce the carbon dioxide output from natural-gas powered turbines… something FuelCell Energy knows a thing or two about.
The partnership is already bearing fruit, but has been described by some as a game-changer in that the technology in question uses flue gas — carbon dioxide otherwise created by combustion reactions — rather than air to power the fuel cell’s chemical reaction. The end result? About two-thirds of the nitrous oxide in the flue gas is destroyed rather than being emitted.
The other ace up the company’s sleeve is the possibility of it winning the bid to develop a 63 megawatt fuel cell facility, which could be worth more than $500 million in revenue. Though it’s an all-or-nothing affair, owners of FCEL stock can appreciate the fact that such large-scale projects are even on the radar.
Bottom Line for FCEL Stock
FuelCell Energy reports earnings on Wednesday morning. While the numbers won’t be jaw-dropping, the commentary sure to come with the earnings news and within the conference call could add some encouraging color to this company inching closer to viability.
Although net profits could still be a year down the road, the company’s never had as much going for it as it does now.
At the very least, it has earned a spot as one of the long-range stocks on your investing watchlist, after falling off most of them a couple years ago.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
