FuelCell Energy Isn’t the Right Green Energy Stock

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FuelCell Energy (NASDAQ:FCEL) has been one of the year’s most surprising stocks. A year ago, it seemed FuelCell was heading to zero. Now, however, FCEL stock has more than quintupled since this time last year. The gains have continued in 2020; shares are up about 50% over the past six months.

Positive Financials Will Power FCEL Stock Soon Enough
Source: Kaca Skokanova/Shutterstock

It’s been an impressive comeback for FuelCell. Just last fall, the company appeared to be on the brink of bankruptcy. In the company’s filings, it had warned that it might not be able to survive as a going concern, as its short-term liabilities significantly exceeded its assets. As a result, at one point, FuelCell slashed production output by 90% in an attempt to stave off insolvency. Fortunately for shareholders, the company was able to find a lender to extend it a lifeline.

That was enough to turn the tide, at least for the stock price. With cleantech stocks surging this year, FuelCell has garnered traders’ attention once again.

It’s been a good ride for the sector, with all sorts of electric vehicles and battery-related shares surging. However, investors should be discriminating, some of these companies are far more promising than others.

Unfortunately, FuelCell is not among the most viable options.

Growth in Revenues, But Lacking Scale

FuelCell Energy reported what may have seemed like a good Q2 back in June. FuelCell produced $19 million in revenue for the quarter. That amounted to a stunning 105% year-over-year increase. FuelCell’s shares initially spiked on the news.

However, traders then looked past the top line and the optimism faded. The company’s net loss of almost $15 million for the quarter only modestly dropped from a $20 million loss for the same period last year. Meanwhile, the company’s adjusted EBITDA figure also remained in negative territory.

We’ve seen this play out frequently in the alternative energy space. Companies are able to get some momentum in terms of revenue growth. However, it often comes with big concessions on pricing. It’s one thing to get some sales, it’s another to do so profitably.

FuelCell has struggled to build a commercially-successful business model over the years, and they still aren’t especially close to reaching the tipping point today.

A Dilution Machine

While Fuelcell’s revenue growth has been impressive, there’s one thing it’s even better at growing: its share count. In fact, its ability to print shares puts even the most aggressive central banks to shame.

Get this: adjusting for reverse stock splits, back in 2011, FuelCell had just 1 million shares outstanding. This doubled to 2 million shares in 2015 and doubled again to 4 million shares in 2017.

But the fun was just getting started. Soon, FuelCell would unveil Venezuela-style hyperinflation of its share count. In 2018, FuelCell’s share count jumped 75% to 7 million. Last year, it went exponential, surging to 55 million shares. And already this year, it’s up to 155 million, a triple in just months.

Let’s put this in perspective. If you bought 10,000 shares of FCEL stock in 2011, you owned 1% of the company. Holding that stake through to today, you’d now own less than 0.007% of the company. One or two secondary offerings may not sound like much, but they add up. Over time, your ownership stake can be diluted away to essentially nothing.

It’s not over by any means either. FuelCell just lined up another $75 million of share offerings in June via an at-the-market offering. This will amount to around 30 million more outstanding shares if the stock continues trading around recent levels. Share printer goes brrr indeed.

FCEL Stock Verdict

I consider these sorts of serial loss-making companies to be uninvestable. If you hold long enough, you’re bound to end up underwater as the firm keeps flooding the market with more and more shares. There’s no sign from the recent financial results that FuelCell is about to turn a corner either.

Rather, it seems FuelCell has benefited as investors have gravitated to clean technology stocks in general. It makes sense to focus on the sector, as there’s a lot of promising research and commercialization projects going in the space right now. FuelCell stock is not likely to be the right vehicle with which to bet on further prosperity in the sector, however.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/fuelcell-energy-isnt-the-right-green-energy-stock/.

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