Similar to other companies with clean energy aspirations, FuelCell Energy (NASDAQ:FCEL) is enjoying positive gains since the March doldrums. Unfortunately, this narrative is a tale of two cities. In the second half of this year, FCEL stock is trending negatively after posting a worryingly weak fiscal third-quarter earnings report.
Sadly, it really shouldn’t be this way, due to President Trump. How so?
His recently revealed interviews with journalist Bob Woodward were incredibly eye-opening, at least among those who are not part of the President’s loyal-at-all-costs voting base. Now, Trump is on record admitting two concepts that he publicly has denied or trashed. This suggests there are more instances where “public” Trump and “private” Trump are in contrast.
But what does this have to do with FCEL stock, you ask? It does if one of Trump’s contradictions is on climate change. With American voters now recognizing the lies coming out of the White House, they may be convinced that climate change is indeed real, which fundamentally supports FCEL stock.
Economics, Science Don’t Mix Well for FCEL Stock
In addition to President Trump’s confusing and credibility-destroying behavior, the raging fires in the western part of the U.S. may fuel sentiment for clean energy infrastructure. California Governor Gavin Newsom has declared that the debate around climate change is over.
Of course, that debate is only over in Newsom’s head. Many conservatives will argue to their deaths denying climate change. However, for the average voter, the record-breaking temperatures, raging fires and Trump’s lies combine for quite a compelling, liberal-centric message. Again, in theory, this dynamic should support FCEL stock and its underlying clean energy business.
Unfortunately, while the science of clean energy has taken center stage, FuelCell’s financials have not. Recently, the company disclosed its results for the fiscal third quarter and they were not encouraging. Yes, FuelCell beat its revenue target, generating top-line sales of $18.73 million. However, this tally was 17.5% below its year-ago sales of $22.71 million.
Further, the company missed on profitability, producing a loss per share of 7 cents when analysts were anticipating a loss of 6 cents. Naturally, FCEL stock dropped sharply on the news. Further, a modest performance in the following day raised the specter that more volatility lies over the horizon.
About the only person that seemed to have a positive perspective on the results was FuelCell CEO Jason Few. Interestingly, he expressed his excitement regarding a future powered by clean energy. As I said above, the political climate is certainly supportive of clean energy.
But the problem for FCEL stock has always been translating clean to green. According to GuruFocus, FuelCell is fundamentally one of the most embattled companies in the markets. With poor financial stability marked by high debt and a distressed business, the earnings report was not a good look.
Investors Should Wait and See
Despite the years-long push for go-green initiatives, it was the novel coronavirus that ultimately was beneficial to the environment. As The Washington Post reported:
The world’s CO2 emissions will plunge 8% this year, a reduction six times as large as the previous global record set in 2009 when the financial crisis rocked the world economy, the IEA [International Energy Agency] said in the report. That would be an “unprecedented rate,” the report said, noting that the drop would probably be twice as large as all declines in CO2 emissions since the end of World War II.
However, the IEA “warned that the decline in CO2 emissions was not permanent. After previous crises, the rebounds in emissions were larger than the declines.” Therefore, once we normalize, demand for the underlying business of FCEL stock should theoretically rise.
But that’s always been the nagging issue about FuelCell, theory. Sure, investors love a good narrative. But at some point, the plot has to become profitable — or provide a reasonable pathway toward profitability. It’s looking like neither of these things will be true, leading to volatility for FCEL stock.
Nevertheless, I don’t want to dismiss FuelCell out of hand. Definitely, the business is relevant, especially as we move toward a permanent new normal. But interested investors should probably wait as this is one of the more problematic green stories.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.