In mid-January InvestorPlace.com contributor Josh Enomoto authored a compelling cautionary note against owning FuelCell Energy (NASDAQ:FCEL) stock. In it, he called it a “penny stock” and “a low-confidence gamble.” He ultimately advised that most folks “should stay far away.” Personally, I don’t have a rule against buying low-priced stocks and I certainly won’t begrudge the good fortune of anyone who bought FCEL stock in November and notched a hefty 700%-ish gain.
Besides, FuelCell is a pure play in the exciting clean-energy sector. Its share price has been much higher, which suggests the potential for more gains ahead.
So, has Mr. Enomoto gone too far in taking this little stock to the woodshed?
Part of a Movement … Though Perhaps the Wrong Part
Let’s start with this: I have nothing personal against this company or the revolution it represents. The push for hydrogen fuel cells is part of a bigger movement that supports cleaner energy, and we’re all entitled to our beliefs on how governments and private enterprise ought to approach the ongoing issue of pollutants in the environment.
I’ll even go so far as to tout some of the unique benefits of hydrogen-fuel-cell technology. These include:
- Can be more efficient than diesel and gas engines
- Operate silently or at least comparatively quietly
- Low-temperature fuel cells emit low levels of heat
- Longer operating times than batteries
- Few moving parts, making maintenance simple
- Less “grid dependence” (i.e., reliance on immediately available power sources)
All that being said, I feel it’s important to separate oneself as an investor from one’s beliefs about environmental policy. Josh Enomoto and I agree that “strong demand exists for clean, alternative energy,” so with that common ground established, it’s time to turn our attention to the company itself: is a long position in FCEL stock a risk worth taking?
An event that took place on Jan. 22 tells me everything I need to know about this company’s current fiscal health, and whether a stake in FCEL is really a “low-confidence gamble” worth taking.
From Low-Confidence to No-Confidence
The event in question is FuelCell’s fiscal fourth-quarter 2019 earnings report, and (spoiler alert) the results could best be characterized as disappointing, dismal and dreadful. FCEL stock shares cratered 23% in premarket trading on the morning of the announcement, reminding speculators that a 700% multi-month share-price gain could conceivably be relinquished in a matter of weeks.
Not to add insult to injury, but I here’s a breakdown of the numbers. The analyst consensus estimate was a net loss of 11 cents per share in revenues, while the actual result turned out to be more than twice that at 23 cents per share. The company’s net losses for the fourth fiscal quarter totaled $36 million — not exactly chump change for a small company. Furthermore, revenues for the quarter fell 38%. Also, product sales declined by a staggering 95%.
Need I continue?
Call me a sadist, but I just couldn’t stop myself from reading the transcript of that monumentally awful day’s conference call. For a brief moment I genuinely felt sorry for FuelCell Chief Executive Officer Jason Few, who had to face the music amid such horrendous earnings results during his very first earnings conference call as the company’s CEO. Mr. Few has few reasons to celebrate a not-quite-stellar fiscal year:
“Despite revenue being down on a full year basis, adjusted EBITDA loss declined by $1.3 million to $31.4 million compared to $32.7 million in fiscal 2018. Adjusted EBITDA loss in the fourth quarter of 2019 totaled $11 million compared to adjusted EBITDA loss of $8.8 million in Q4 2018.”
In plain English, the company’s doing poorly, but not as poorly as the prior year. Low confidence, indeed.
The Takeaway on FCEL Stock
I’m certainly not the first InvestorPlace.com contributor to advise caution regarding FCEL stock. Dana Blankenhorn regretfully expressed, “I wish I weren’t writing this, but FuelCell Energy remains a speculation.” Meanwhile, Vince Martin recently conceded that “history, as well as the intense competition in the renewable energy space more broadly, is enough to keep me personally on the sidelines.”
As for Mr. Enomoto, his admonition remains characteristically timely and trenchant, with a message that’s worth repeating: FuelCell Energy may be fuel, yes, but only for a gambler.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
