FuelCell Energy (NASAQ:FCEL) is a supplier of fuel-cell power systems. Its SureSource power plants are used to generate relatively small amounts of electricity. Among its customers are hospitals and utilities; each of the latter uses its fuel cells to generate a megawatt of electricity. So far this year, FCEL stock is up 30%, but it’s still not far off its five-year lows. That may sound like a good time to buy the shares, but don’t pull the trigger yet.

FuelCell may not be a good choice for those considering investing in hydrogen-fuel-cell technology.

FuelCell’s Q2 Results Were Strong 

The novel-coronavirus pandemic has had a negative impact on many companies. There were legitimate concerns that FuelCell would feel the bite of the pandemic. A slowdown in commercial activity and cost-cutting by organizations could have impacted its revenue and future bookings.

Instead, when FuelCell reported its second-quarter earnings on June 12, the company noted that its Q2 revenue had soared 105% to $18.9 million. The company reported a loss of $8.1 million on its operations, compared to a loss of $17.6 million a year earlier. FuelCell’s operating expenses tumbled 41% year-over-year, and its order backlog increased 6% to $1.34 billion. Its net loss of 7 cents per share was slightly higher than analysts had been expecting, but that was a huge improvement over the loss of $2.06 per share that it had reported in Q2 of 2019.

That all sounds pretty good, especially in the context of the pandemic, and FCEL stock popped in the wake of the news. So why did I suggest that FuelCell may not be the best play in the hydrogen-fuel-cell sector?

The Plug Power Effect

There’s been some interesting movement in FCEL stock since the start of August, but it wasn’t caused by anything having to do with FuelCell. 

The hydrogen-fuel-cell industry is relatively small, so an event that affects one company can have a direct impact on the stocks of others. A similar phenomenon occurs when the shares of electric car makers react to major  announcements by Tesla (NASDAQ:TSLA).

On Aug. 3, Plug Power (NASDAQ:PLUG) announced that it would supply hydrogen fuel cells to a major UK supermarket chain. The UK is a new market for the company, and the deal represented the first large-scale deployment of fuel-cell technology in that country.

PLUG stock popped 19% on the news and kept climbing. FCEL stock jumped 14% on the same day, then followed Plug Power closely over the next several weeks. Even after giving back some gains over the past few days, Plug’s shares have jumped 33% in the last month, while FuelCell has gained 17%.

So far in 2020, FCEL stock has been much more volatile than Plug Power, and FuelCell has been prone to rapid rises and drops. Overall, it’s climbed 31% in 2020. PLUG stock has been rising since June and has posted a whopping 252% gain so far this year.

The contrast between the two companies is much starker in light of their respective stock prices over the past five years. During that time, FuelCell Energy’s shares have plummeted about 97%. In contrast, Plug Power’s stock has risen by over 500%. Comparing the performance of these two companies since 2015 is like looking at a mirror image.

Different Focuses

Plug Power and FuelCell Energy both employ hydrogen-fuel-cell technology, but they each specialize in very different markets.

FuelCell builds SureSource power plants. Its focus is on delivering clean, alternative energy through electrical power plants. These facilities may also be used to produce surplus hydrogen for refuelling vehicles. Plug Power, on the other hand, makes hydrogen fuel cell systems that companies use instead of batteries to power fork lifts and short-haul delivery vehicles. 

Consumer electric cars have been increasing in popularity. But when it comes to commercial fleets, having to wait hours for a battery to re-charge isn’t an option.

That’s made hydrogen-fuel cell systems like Plug’s increasingly popular. Some automakers, including Toyota (NYSE:TM), continue to bet that hydrogen fuel cells may eventually win out over battery-powered electric cars in the consumer market as well. Last June, I wrote that PLUG stock was set to soar. It was at $2.55 then, and it’s changing hands for $13.65 now.

FuelCell Energy stock has been going in the opposite direction, in large part because it is competing against a wide range of alternative-energy power sources, including solar and wind power . In addition, rock-bottom natural gas prices have made it tougher to convince organizations to replace their gas-fired electrical plants with alternative-energy solutions.

The Bottom Line

Don’t count FuelCell out in the long term. But don’t mistake the movement of FCEL stock over the past two weeks for a signal that the company’s fortunes have changed. And if you’re looking for a hydrogen-fuel-cell play that’s going nowhere but up, Plug Power is definitely the better option at this point. 

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.