FuelCell (NYSE:FCEL) is becoming a viable business. But whether it can become a profitable business is another matter entirely. And that should be in the forefront of investors’ minds before they consider jumping in on FCEL stock.
The megatrend that is emerging as a catalyst for all hydrogen stocks is the commitment to renewable energy. I use the word commitment carefully because hydrogen fuel cell technologies are not a new concept.
However, the technology is getting some notable champions. The nascent, yet disruptive, Nikola (NASDAQ:NKLA) is vowing to produce a fleet of fuel-cell powered trucks . And Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) continue to use hydrogen fuel cells to power their forklifts.
But the common denominator with all of those companies is that none of them are doing business with FuelCell. And that’s significant for obvious reasons. FCEL stock is up over 25% in 2020. However, Plug Power (NASDAQ:PLUG) is enjoying a gain of over 185%.
That’s not to say FuelCell does not have its proponents. The company has a partnership with Exxon Mobil (NYSE:XOM). The $60 million deal is focused on developing carbon capture technology. This is an essential step to making the company’s core product line, SureSource power plants, a real source of “clean” energy.
But is it enough to warrant the current FCEL stock price?
FuelCell Is Becoming Viable
FuelCell Energy designs, manufactures, installs, operates, and services stationary fuel cell power plants for distributed power generation. While FuelCell can point to applications in a wide range of applications ranging from data centers to wastewater treatment plants, it still operates in a very narrow niche.
But as Luke Lango points out investors may be asking the wrong question. FuelCell will grow over the next few years. However, it certainly appears that most of that growth is priced into the stock today. And that leads to a fundamental problem with FuelCell.
FCEL Stock Price Doesn’t Equal Value
FCEL stock has jumped from around 30 cents per share to, at one point, over $3 per share. And Lango credits the jump to investor optimism that an increasing number of companies will embrace FuelCell’s hydrogen fuel cell (HFC) power plants.
But I suspect that it could also be making a significant move because the stock was cheap. And I’m not talking about cheap in terms of its value (although it may have been). I’m talking about it cost just about a buck a share in March. And that drew the attention of investors who saw an opportunity to capitalize on a low price. For (some) of these investors, price doesn’t have to equate with value. It has to equate to opportunity.
So, the thought isn’t whether they would, or should continue, to hold onto the stock. The thought is can they make successful trades. And undoubtedly, they have.
The stock isn’t reviewed by many analysts. And it trades at about half the volume of Plug Power. Furthermore, two analysts offer opinions on FCEL stock and they agree with Lango that the stock should be trading much closer to $1 than it is at the moment.
Profitability Remains Elusive
In the company’s second-quarter earnings report, it made a point of highlighting the 105% year-over-year revenue growth. And while that’s certainly impressive, the company is still not yet profitable.
Tezcan Gecgil cited a National Geographic article that sums up the core problem for hydrogen fuel cells. They’re simply not economically competitive with more traditional energy technologies. That’s a story that may be changing for companies like Plug Power who are using finding partnerships that are getting sticky, and profitable.
Until FuelCell finds similar partnerships, and subsequent revenue streams, the stock seems overpriced and headed for a fall.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
