[[Correction: This article was updated on Feb. 14. 2020, to correct details about FuelCell.]]
FuelCell Energy (NASDAQ:FCEL) reported fourth-quarter results on Jan. 22. They were disappointing, sending FCEL stock below $1.60. Thankfully, for anyone betting on the maker of baseload power solutions using proprietary molten-carbonate fuel cell technology, its share price has recovered some of those losses.
In January, I called both FuelCell Energy and Plug Power (NASDAQ:PLUG) speculative buys but only for those who could afford to lose their entire investment. Clearly, FuelCell’s stock has been extremely volatile over the past three weeks. Heck, at a market cap of less than $500 million, it’s been this way for more than a year now.
While I like the emerging fuel cell technologies market in which FuelCell plays, losing $31.4 million in adjusted EBITDA in fiscal 2019 on $60.8 million in sales doesn’t provide most investors with a warm, fuzzy feeling. By comparison, Bloom Energy (NYSE:BE) through the first nine months of 2019 had positive adjusted EBITDA of $64.8 million from $668.0 million in revenue.
For speculative investors, I’m not suggesting you abandon your bet on FuelCell’s future. However, for those with an aversion to risk who want to bet on clean energy, Bloom’s energy server platform helps businesses work 24/7 while also keeping their energy requirements affordable.
It’s a win/win energy solution.
What to Expect in the Future
In the markets where Bloom has installations, the company estimates that its serviceable addressable market is $175 billion, up from $21 billion in 2009. On an annualized basis based on Q3 2019, the company’s revenues represent just 0.5% of this market. Assuming it gets to 5% of the market, we’re talking about $8.75 billion,
How fast could it get to that figure?
In Q3 2019, Bloom had 302 acceptances, which represents 30.2 megawatts of power from eight different end customers. That was up from 271 acceptances in the second quarter and 206 a year earlier. For those not wanting to do the math, that’s a 46.6% year over year increase.
What’s attractive about Bloom’s business model is that it has four revenue streams: Product, Installation, Service, and Electricity. So, for each acceptance, it generates approximately 83% of its revenue upfront, with the remaining 17% on an ongoing basis.
Now, I should note that this ongoing revenue currently is at breakeven or even a slight gross-profit loss. However, if it were to get to $8 billion in revenue, the economies of scale generated by that amount of sales would likely deliver gross profits, not losses.
Through the first nine months of fiscal 2019, it had 808 acceptances. That’s almost $827,000 per acceptance. Currently growing its rate of acceptances by 11% per quarter on a sequential basis, it would take nine years to reach 10,580 acceptances.
Bloom’s stock is currently trading at 1.3 times sales. Assuming the multiple stayed the same over the next nine years, in 2029, it would have a market cap of $11.4 billion for a compound annual growth rate of 28.4%.
I don’t know about you, but if all of this were to play out, and that’s a big if, do you think the multiple would stay at 1.3 times sales?
I sure don’t.
The Bottom Line on FCEL Stock
As I said in the beginning, I like FuelCell’s business model. It’s just not quite at the point where I can recommend it to risk-averse investors.
Bloom Energy, meanwhile, appears to be a few steps ahead of its clean energy peer.
That said, on February 12, Bloom announced that it will have to restate its quarterly financial statements between Q1 2016 through Q3 2019.
“The Company also announced it will restate certain prior period financial statements due to an accounting error related to its Managed Services Agreements (“MSAs”). MSAs are one of the Company’s three customer financing options to acquire Bloom Energy servers,” stated its press release.
“The revenue for the Managed Services transactions will now be recognized over the duration of the contract instead of upfront.”
The company estimates the changes to net revenue will be less than 10% of total revenue over the affected period.
While I still like Bloom Energy, I wouldn’t recommend you bet more than 1%-2% of your portfolio on it, because it’s only just begun to generate non-GAAP EBITDA profits.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.