Even though science is not my passion, I understand math well enough. And when I examine the big-picture outlook of FuelCell (NASDAQ:FCEL) stock, I see a company with falling revenue and a stockpile of cash that is dwindling.
Two other InvestorPlace columnists — Josh Enomoto and Laura Hoy — explain the science behind fuel cell technology better than I can. Enomoto explained why FuelCell’s unique selling proposition, may or may not be a game changer. And Hoy wrote about why the current market environment could make FuelCell the wrong company for the wrong time.
But I’m going to focus on examining the company’s finances.
Revenue Growth That’s Less Bad Is Not Good
Let’s start with the company’s income statement. Its operating revenue in the third quarter was approximately $60.7 million. That’s a decline of over 60% since the same period in 2015.
And even though FuelCell’s operating expenses have been declining slightly, its lack of operating revenue is crushing the company’s operating income. In Q3, its operating income was -$66.9 million.
In the last two quarters, FuelCell Energy has beaten analysts’ average revenue expectations. However, the company’s overall financial picture shows that being less bad than expected is still not good.
The balance sheet has more bad news. It shows that the company’s total current assets have tumbled over 60% since 2015. And its cash, cash equivalents, and restricted cash are only worth $39.8 million.
But the value of its property, plant and equipment has increased a great deal, while the value of its intangible assets has risen slightly.
What this implies is that the company is building out infrastructure and has debt to pay off. To pay its debt, the company has obtained an 8-year $200 million secured credit facility from Orion Energy Partners Investment Agent, LLC.
The Bull Rush Didn’t Last
In January, FCEL stock was trading at over $2.50, a huge jump from its 20 cents per share price in the summer of 2019. And it got the attention of investors.
However, the shares’ rally was largely fueled by the hope that came from a deal it signed with ExxonMobil (NYSE:XOM). The companies’ expanded joint venture can bring in $60 million of revenue.
Considering the company generated only slightly more than $60 million of revenue in all of 2019, you can see why investors got excited about its Exxon deal and why FCEL stock surged to $2.88. But that was then. Since the company reported its Q4 earnings, the stock has given back a significant chunk of its gains. Some of the shares’ decline was due to the falling price of crude oil.
While the stock may be out of the danger zone of bankruptcy, it still looks like it’s being propped up by hope, not cash.
What Does the Future Hold for FCEL Stock?
I understand the attraction of FCEL stock. The company is in the renewable energy sector. The stock is so inexpensive that a little lift in the share price will result in high-percentage gains for its owners. However, as another InvestorPlace columnist, Tom Taulli, recently wrote, the shares look overvalued.
In any case, even with FuelCell’s recent deal with ExxonMobil, the company simply isn’t showing me enough sustainable revenue. Without that, the company’s future is as unclear as the short-term direction of oil prices.
Those are the reasons I won’t be investing in FCEL stock, and that’s why I recommend that you avoid the stock as well.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
