Both companies ostensibly are “fuel cell” plays, yet their operating models are completely different. After all, Plug Power uses fuel cell technology to power forklifts and other electric vehicles. FuelCell Energy, however, is in the power generation business. Its model sits much closer to Bloom Energy (NYSE:BE) than to Plug Power.
That said, from a financial standpoint, the grouping of FCEL and PLUG — not to mention Bloom Energy and Ballard Power Systems (NASDAQ:BLDP) — does make some sense. Fuel cell stocks as a whole have been notorious destroyers of investor capital.
Both PLUG stock and FCEL stock have lost more than 99% of their value from past peaks. FuelCell Energy stock, in fact, is down nearly 99% just in the last five years.
The entire sector has just a handful of profitable quarters — and not a single full year of positive earnings. Fuel cell stocks have always been tantalizing, and seemingly always just a year or two away from finally fulfilling their promise. Disappointment, without exception, has followed.
But Plug Power has managed to execute an intriguing turnaround of late, with its shares up 173% over the past year. FCEL stock has seen similar optimism, with shares gaining a stunning 1,500% from a Jun. 26 intraday low.
Even with those gains, however, its turnaround is in the earlier stages — which means it might be the next fuel cell stock to soar, or once again the next to disappoint.
The Case for FCEL Stock
The gains of late aren’t quite as impressive as they seem. The June lows came just before FuelCell itself warned of a possible bankruptcy filing. Shares, somewhat incredibly given the fierce rally of late, still are down 68% over the past year.
But FuelCell has delivered reason for optimism. Much of the rally has come since November. Early that month, the company announced a 2-year carbon capture agreement with Exxon Mobil (NYSE:XOM). The same day, the company released details of a $200 million credit facility. Shares doubled on the two pieces of news and would rise a whopping 230% in just seven trading sessions.
The next catalyst came just before Christmas. A long-delayed project with Edison International (NYSE:EIX) subsidiary Southern California Edison finally came online. The opening with a 2.8-megawatt facility in Tulare, California came with a 20-year power purchase agreement.
As a result, a company that looked like it wasn’t going to make it through 2019 without restructuring had an improved balance sheet and a large, legitimate project that would provide revenue for some two decades. The addition of respected partners in Edison and Exxon Mobil boosted the long-term case as well. FuelCell Energy stock again soared.
This simply looks like a different, better company than it did six months ago. Bulls might even argue that it looks like a better company than it did a year ago — when FCEL stock traded near $7 (adjusted for a 1-for-12 reverse split in May). \
Even considering substantial dilution from warrants issued in the loan facility, that argument still suggests that shares have a continued rally ahead from the current price just above $2.
It’s in that context that the rally in PLUG stock is perhaps more material than it might seem. The skeptical answer to any rally in pretty much any fuel cell stock is simple: we’ve been here before. Yes, there’s some good news, but there’s been good news plenty of times in the past. Investors have always ended up disappointed, and this time won’t be any different.
But those skeptics would have missed out on the rally in Plug Power stock. And that rally thus likely changes the narrative surrounding FuelCell Energy at the moment. Even though the operating models of the two companies are different, investors may not want to miss out on the “next” big winner in the space, and they may have more willingness to take on the industry’s risk than they would have otherwise.
The Bottom Line on FCEL Stock
That said, history isn’t the only risk. FuelCell Energy has a long, long way to go. Long-term adoption of fuel cell technology is far from guaranteed. Battery technology from the likes of Tesla (NASDAQ:TSLA) may better represent the future of “clean” energy.
Meanwhile, short-term price movements don’t completely negate that history. FuelCell Energy has been around since 1969. The company went public in 1992. It’s certainly fair to wonder if there simply is a structural problem with the industry and the business model that suggests long-term profitability isn’t on the way. Again, the company has been around for more than 50 years and still is burning cash.
That history, as well as the intense competition in the renewable energy space more broadly, is enough to keep me personally on the sidelines. But the market may well see it differently, and at the very least FuelCell Energy has a chance to prove that this time indeed is different. That’s more than the company could say just six months ago, and the key reason why FCEL stock has soared.
As of this writing, Vince Martin has no positions in any securities mentioned.