After a nice rally, is today’s modest technical road bump in FuelCell Energy (NASDAQ:FCEL) a better opportunity to buy, sell or avoid until further notice? With that question in mind, let’s take a closer look at what’s happening to FCEL stock both technically and fundamentally.
The hydrogen space has been a great market to invest in during 2020. Stand out returns on investment have been even more explosive over the last twelve months. Thank Wall Street’s current fascination with everything renewable to help reclaim our planet. More important, there’s obvious reasons for today’s trend to remain persistent.
Improvements in the science behind the alternative energy and emissions-free movement, as well as lower costs to compete against traditional and dirtier fossil fuels have made going green in our daily lives at home, work or somewhere in-between, easier by the day.
Electric vehicles like those from Tesla (NASDAQ:TSLA) and solar are the dominant faces of this market. But for investors there are other alternatives making inroads of their own and worth paying attention too. One of those is hydrogen-based technologies. And one stock with no shortage of past failures and plenty of critics that’s riding this trend towards a brighter future is FuelCell Energy.
FuelCell builds stationary fuel cell power plants for distributed power generation. The company does this through a multi-pronged approach, including distributed hydrogen, micro-grid and multi-megawatt applications. But for investors FuelCell is also is a battleground stock with no shortage of bears. And the group’s near 18% of short interest have history on their side.
So, what’s the problem, at least with the way bearish investors view FCEL stock?
It could be that FuelCell is older than virtually every single one of today’s top tech behemoths, including Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). The thing is while those companies and others in their vein have changed our world for the better and proven top-notch investments for shareholders, FuelCell has delivered truly little in its more than five decades as an enterprise.
Plain and simple, over the past couple decades the most investible feature has been shorting shares backed by FuelCell’s consistent failures towards the brink of total collapse as a publicly traded company. That’s changed though.
This past November, an expanded partnership with Exxon Mobil (NYSE:XOM) worth $60 million for the development of carbon capture and separate $200 million credit facility was a big-time lifeline. The immediate benefit to shareholders was FCEL rallying from about 25 cents to nearly $3 over two months to close out 2019.
But is the paired show of faith something more too? Has the time finally arrived for FuelCell? Sadly, long-term investors have little chance of recouping their losses anytime soon. Despite 2020’s continued show of strength, the stock by my reckoning, is still 99.99% removed from its all-time-highs set during the Dot.com boom.
Yet for tomorrow’s investors, increasingly there is more than just hype and hope surrounding FuelCell. In fact, Dr. Fatih Birol, executive director of the International Energy Association is fully supporting hydrogen’s momentum. Dr. Birol sees the energy alternative as a viable and important part of the planet’s clean secure energy future.
To be fair, FCEL stock still falls into the realm of more speculative investments. The company remains mired in red ink and continues to burn cash. And when earnings were released in June, FuelCell elected to not give guidance citing the coronavirus. Not that the company is alone on that point.
Still and optimistically, business momentum into the report did show some marked improvements with much smaller losses which matched, rather than disappointed Wall Street. Year-over-year sales growth of around 105% is also impressive and topped consensus views.
Want more? Compared to peers Ballard Power (NASDAQ:BLDP) and Plug Power (NASDAQ:PLUG), FuelCell’s valuation is substantially smaller. The company fetches about $600 million versus market caps of $3.5 billion and $2.8 billion, respectively. FCEL’s revenue growth this past year has also proven stronger and its price-to-sales ratio of around 6.25x tops the group.
FCEL Stock Weekly Price Chart
Source: Charts by TradingView
Technically speaking, the weekly price chart in FuelCell also lends itself to more than just hype and hope. Shareholders can continue to ride today’s trend to greater profits. As the illustrated stock graph shows, FCEL stock is currently in a larger emerging uptrend since November’s initial funding catalyst. It’s promising, but not the entire story either. The bears may not yet be done.
Personally, I strongly believe investors should always be wary of a perfect-looking investment regardless of where that information comes from. Still, buying FuelCell shares today is less-than-ideal within its broader trend. A slightly lower-high formation this month was confirmed by a bearish-looking stochastics crossover. And the topping action has continued. Moreover, profit-taking has broken steeper trend support within the larger uptrend.
Ultimately, it’s more than okay to believe FuelCell’s time is here for real and the boom in the alternative energy market will lead to a sustainable future for the company. But in lieu of today’s price chart, Fibonacci and channel support ($1.75 – $2.25) is still below FuelCell’s current levels, and there’s no weekly indication of a low suggested by a candlestick pattern and/or stochastics. As such, tomorrow’s investors still have time on their side before taking action.
Disclosure: Investment accounts under Christopher Tyler’s management own Plug Power (PLUG) and its derivatives, but no other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.