With renewable energy being all the rage these days – and let’s be honest – this isn’t just a fad, it’s not surprising that some investors are hunting and pecking with some lower-priced stocks in the space, including FuelCell Energy (NASDAQ:FCEL).
On March 2, FCEL stock closed at $1.93. While that’s a price point at which legitimate viability concerns will arise for any stock, that may not be a pressing concern with FuelCell because the company has been in business for over 50 years. That said, what FCEL stock looks like going forward is anyone’s guess and that’s not a positive.
In all of three days in late December, FuelCell doubled after its water treatment facility in Northern California commenced operations. The company has a 20-year contract for that plant with Southern California Edison, a unit of utility giant Edison International (NYSE:EIX). There are some important takeaways from that deal.
First, its clear FuelCell can pack a big punch in short time frames both up and down. Second, traditional utilities are embracing renewables in significant fashion. Third, there is some market for FuelCell products and services.
FuelCell develops “turn-key distributed power generation solutions and operate and provide comprehensive services for the life of the power plant. We are working to expand the proprietary technologies that we have developed over the past five decades into new products, markets and geographies,” according to the company.
Procuring Financing
After the aforementioned late December surge, FuelCell has been on wild ride, one that has seen the stock shed 23.11% off its value since the start of 2020. However, it hasn’t been all doom and gloom for the company this year.
Last year, FuelCell said it landed $10.5 million in net proceeds through a sale-leaseback deal on its Tulare facility. In a sale-leaseback, a company sells a physical asset, signs a lengthy lease agreement (in this case 10 years) with the buyer, and raises cash while still retaining upside in the operations. The benefit for the buyer is long-term, steady rent payments.
Adding this operating asset to the Company’s generation portfolio is expected to yield recurring revenue in excess of $2.5 million per year and increases the Company’s operating assets to 28.9 MW,” according to FuelCell. The Company has another 44.3 MW in backlog, in various stages of development and construction with commercial operation dates ranging from 2020 through 2022.”
That move to generation cash may not be adequately reflected in the FCEL share price nor is a biofuels project at the San Bernardino Municipal Water Department (SBMWD) in San Bernardino, Calif. As the Tulare project shows, if something positive comes of FCEL’s efforts in San Bernardino, the stock could rapidly surge.
Still, there are plenty of reasons to be cautious. Not the least of which is history. Once upon a time, FCEL traded in the four figures. Today, a trip to Starbucks would cost more than a share of this stock. Then there are the costs associated with generating hydrogen power.
Last year, researchers at Johns Hopkins University and the University of California, Los Angeles published worked indicating copper could play a role in hydrogen power generation, which would be a relief for generators that have been long reliant on pricier palladium and platinum.
However, that’s a long-ranging theme that may provide little or no benefits to FCEL investors over the near-term.
Bottom Line on FCEL Stock
FuelCell reports fiscal first-quarter results on March 16, an event that could bring some near-term upside for the stock. However, investors should assess just how many one-off events it’s going to take breathe a sustainable rally into this name.
Additionally, there are some wider-ranging factors to consider with FuelCell, including the current environment not being supportive of small-cap stocks in general and the fact that there are higher quality names in the alternative energy space to embrace.
As of this writing, Todd Shriber did not own any of the aforementioned securities. He has been an InvestorPlace contributor since 2014.
