Shares of fuel cell power company FuelCell (NASDAQ:FCEL) have been all over the place over the past year. First, FCEL stock dropped from over $10 in February 2019, to under 20 cents in June 2019. Then, shares jumped to $3 by mid-January 2020. Following an ugly earnings print, the stock lost half of its value overnight, and dropped to $1.50 by the end of January. Now, it’s rallying back towards $2.50.
This enormous volatility can be chalked up to the fact that the FuelCell growth narrative has similarly been all over the map.
Long story short, there’s been a lot of hype surrounding fuel cell companies over the past year as demand for clean energy has risen and, in many instances, fuel cells offer a cost-effective way for companies to transition to clean energy. But, whereas some companies in this space have a clear, narrow, and specifically defined growth strategy to capitalize on rising fuel cell demand, FuelCell does not.
Instead, this company has pivoted several times over the past year, and the result of all those pivots is that investors don’t really believe that this company has a sharp enough focus to capitalize on market adoption tailwinds. I don’t blame them. The story here is all over the place, and the numbers remain sluggish.
Thus, until the company narrows its focus and the numbers turnaround, I’d avoid FuelCell stock. There’s just too much volatility and not enough clarity to warrant any speculation at current levels.
A Confusing Growth Narrative
The whole growth narrative at FuelCell is overly broadly, lacks focus, and is pretty confusing.
In a nutshell, fuel cells are an alternative to electric batteries as a clean-energy production source. In the consumer car market, electric batteries have dominated fuel cells in terms of adoption because of lower production costs and more widespread charging infrastructure.
But, fuel cells do have certain advantages, such as shorter recharging times, longer ranges, higher power output, and reduced storage requirements/costs. As such, in industries where companies can leverage these advantages without adopting the disadvantages, fuel cell demand is rising.
See the materials handling industry, where companies can deploy fuel cell forklifts to simultaneously cut costs, improve work efficiency, and hit sustainability targets. That’s why Plug Power (NASDAQ:PLUG) has zeroed in on this market. This zeroing in has powered consistently strong numbers for the fuel cell company over the past year, and PLUG stock has consistently charged higher.
That isn’t the case with FuelCell. Instead, the company is all about scoring big fuel cell contracts in the utility and energy space. Sounds promising, yes. But, the growth road-map there lacks clarity, because it is not inherently obvious why companies will all the sudden pivot towards big fuel cell power generation facilities.
As such, although the company has won some big contracts over the past year, the numbers remain pretty ugly. Last quarter, revenues dropped 38% year-over-year and adjusted net losses on an earnings before interest, taxes, depreciation, and amortization basis widened from the year-ago quarter.
Too Much Volatility in FuelCell Stock
The enormous volatility in FuelCell stock is attributable to a lack of clarity surrounding the company’s go-forward growth prospects. So long as this lack of clarity persists, shares will remain risky and volatile.
At the current moment, there’s a lot of uncertainty in the FuelCell growth narrative. The company just reported awful fourth-quarter numbers, and the order backlog here is much smaller than many had anticipated. That implies that 2020 numbers may not be much better than the bad 2019 numbers.
Concurrently, management’s newly announced “Powerhouse” business strategy doesn’t include many tangible details that add certainty to the company’s long term growth prospects. That’s partly why this new strategy hasn’t helped stem the decline in shares over the past month.
Zooming out, then, the whole growth narrative here continues to lack clarity. As does the company’s long term profit growth potential. So long as those things remain true, FuelCell stock will remain too risky to buy.
Bottom Line on FCEL Stock
I’m bullish on some fuel cell stocks, and bearish on others. Unfortunately, FuelCell remains in the camp that I’m bearish on, mostly because the company’s growth narrative lacks clarity, the stock is highly volatile, and the numbers remain weak. As such, I’d pass on buying the stock here. If investors are looking for exposure to the fuel cell space, I’d point them to Plug Power stock.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
