Fuel cell stocks have been a hot commodity in recent months, but FuelCell Energy (NASDAQ:FCEL) continues to experience its share of ups and downs. The stock was on a brief run in January, but the shares started to drop once again toward the end of the month.
The drop was mostly due to the company’s disappointing fourth-quarter earnings. And FCEL stock’s drop immediately caused a ripple effect where other fuel cell companies saw their shares begin to fall as well.
FuelCell is currently down more than 70% over the last year and is considered a moderate sell on Wall Street. So is the low price point a buying opportunity, or a reason to steer clear?
Here are three things you need to know before investing in FCEL stock.
FCEL Missed Its Fourth-Quarter Earnings Estimates
FuelCell’s third-quarter earnings report was much better than investors were expecting, and the company blew revenue expectations out of the water. So when the company reported its fourth-quarter earnings on Jan. 22, investors were hoping the positive trend would continue.
Unfortunately, that did not end up happening. FuelCell’s revenue and earnings both missed Wall Street’s expectations. The company lost 23 cents per share, missing estimates by 12 cents.
It’s worth pointing out that the company’s operating losses did narrow from a year earlier. Last year, the company reported a loss of $2.31 per share, so its operating loss improved by 90%. But investors were expecting better results after its third-quarter performance.
FuelCell’s Backlog Shrank During Q4
One of the most crucial factors investors were looking to see during the earnings report is that the company’s backlog of work is growing. At the end of the third quarter, the company reported a contract backlog of $1.4 billion.
Then in November 2019, the company announced its backlog had reached $2 billion. But the company’s recent earnings report showed a decline in backlogged work, prompting the firm Craig-Hallum to downgrade the company.
Fuel Cell Industry Faces a Number of Headwinds
There’s been a lot of excitement surrounding the fuel cell industry in recent years. But the industry still faces its share of challenges going forward. For one thing, many of these companies are not produced by renewable energy sources but instead run on natural gas.
It’s possible that fuel cells could run on clean energy in the future, but most companies haven’t reached this point yet. While fuel cells could be a viable industry in the future, many of the existing fuel cell companies are still struggling to turn a profit.
FuelCell Energy continues to disappoint investors, and its shares are currently hovering dangerously close to the $1 per share mark. So for the time being, it’s probably a good idea to hold off investing in this company.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.