It’s normally cold in Siberia. Not surprisingly, then, scientists were alarmed to see record-breaking high temperatures in the region this year — the hottest since records were kept. For several years, the threat of climate change has bolstered the case for companies like FuelCell Energy (NASDAQ:FCEL), which seeks to leverage technology to promote cleaner energy solutions. Certainly, fallout from the novel coronavirus pandemic has revitalized FCEL stock.
Take, for instance, the oil price war between Saudi Arabia and Russia. Though it seems like a distant memory now, the fact that riveted the entire world. Historically a first, the ridiculous dynamic sent a critical message to the American people. Until we find other truly viable energy alternatives, we will be beholden to the geopolitics of oil.
Again, this is one of the positive storylines for FCEL stock. In addition, our country has undergone a demographic paradigm shift. According to the Pew Research Center, millennials are the largest generation in the U.S. workforce. And that matters for alternative and clean energy markets because they care more about environmental sustainability than previous generations.
Not only that, companies should care about what millennials think, at least to some extent. In other words, don’t be like me — someone who has previously questioned the rise of electric vehicles, as an example. Younger consumers love EVs, forcing traditional automotive stalwarts like Ford (NYSE:F) to see the light. That’s how Ford came to slap its iconic Mustang brand on its upcoming electric SUV/crossover.
Sure, this upset Detroit muscle-loving gearheads. However, this is a dying demographic. So, I got onboard with Ford. Should investors do the same with FCEL stock?
Science of FCEL Stock vs. Investment Proposition
For intellectually curious people, FuelCell provides much food for thought. A big reason why FCEL stock is so compelling is the underlying company’s potential. For instance, with its innovations, FuelCell can provide power generation with minimal physical footprint, attractive for extremely crowded urban areas.
In addition, FuelCell has a division dedicated to carbon capture, partnering with Exxon Mobil (NYSE:XOM) for the journey. On the surface, these factors appear net positive for FCEL stock. But the problem is the lack of conversion synergies, as noted by as InvestorPlace contributor Chris Markoch:
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%.
No one’s denying that FuelCell’s team is staffed by incredibly smart engineers and scientists. But brilliance alone doesn’t guarantee a successful business.
And this has long been a criticism of fuel-cell derived energy: they’re not economically efficient as you might think. Also, the carbon capture unit perfectly illustrates the viability question of FCEL stock.
Sure, the idea of carbon capture is every climate scientist’s dream come true. But as FiveThirtyEight.com contributor Maggie Koerth argues, saving the earth by itself is not enough of an incentive for corporations.
Let’s assume that companies start capturing carbon emissions, where would that carbon go? This substance is essentially worthless, providing no business advantage for participating entities.
Similar but Not Really
Investors are going crazy lately for trending stocks and sectors. It’s possible that FCEL stock will get caught up in the broader enthusiasm for alternative energy markets. So no, I wouldn’t short it, especially in this environment.
However, I’m not sure if the science is practical and efficient enough to make sense economically. Let’s face it: if it were, FuelCell stock would likely be trading astronomically higher. I highly doubt that such an informational arbitrage would last this long.
Finally, the lack of a robust market for some of FuelCell’s key businesses is concerning to me. Dan Lashof, U.S. director of the nonprofit World Resources Institute, remarked to FiveThirtyEight.com, “Solar is generating electricity you can sell. Electric cars are really fun and fast and you don’t have to go to the gas station. There’s a market for that independent of climate benefits.”
That last point is the key. If you believe there are benefits to what FuelCell is selling beyond a positive climate impact, by all means go for it. But it seems that the competition has already stolen its thunder.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long F and NKLA.