The surging investor interest in green energy plays sent FuelCell Energy (NASDAQ:FCEL) to levels not seen in years. But even at current levels, FCEL stock is still nowhere near the $25 pre-split price last seen in 2018.
Investors have a very good reason to distrust management. Whenever the stock stages a sharp rally, the company sells shares. Also, the most recent fourth-quarter results are hardly inspiring.
Equity Offering Pressures FCEL Stock
On Dec. 2, FuelCell announced the sale of 34,518,539 shares for $6.50. Although the stock rallied from there in the days that followed, positive sentiment for clean energy stocks helped FuelCell’s issuance look attractive. The company said it will raise $128.8 million from the sale of 19,822,219 shares. $95.5 million, or 14,696,320 shares, from selling stockholders will not go to FuelCell.
The company will use the proceeds to pay down amounts owed from its credit agreement with Orion Energy Partners. It will also use some of the funds to pay the principal redemption price on preferred stock. One of its subsidiaries holds those shares.
Momentum Fade a Big Risk
The clean energy boom in the stock market could end at any time. That would put an end to the buying momentum for companies like FuelCell. On Sept. 29, the company announced the pricing of 43.5 million shares at $2.10, raising $91.35 million. The stock sale followed a few weeks after the weak third-quarter report.
FuelCell posted revenue of $18.7 million, down by 17.6% from last year. It lost 7 cents a share on a GAAP basis. When it posted an adjusted EBITDA of -$5.64 million, the stock should have fallen and stayed there. Major issues at the Bridgeport Facility is adding to its losses. As the filing indicated, “POSCO Energy filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) purportedly seeking to enforce its rights as a stockholder of the Company to inspect and make copies and extracts of certain books and records of the Company.” If it loses the case, FuelCell will have legal expenditures and settlement costs that will drain its cash on hand.
Speculators are betting that the change in political leadership will result in a boom for the hydrogen economy. Regulations for reducing pollution will lead to increasing support for companies supplying zero-emission fuel solutions. FuelCell is in a good position to market its tri-generation hydrogen technology platform. It has a new facility at the port of Long Beach, California.
The project will power the Toyota facilities. Plus, the hydrogen generation will power Toyota’s zero-emission fuel cell trucks and consumer vehicles. By helping automobile manufacturing lower its emissions, it will enable a world empowered by clean energy.
Conservative investors should not ignore the several warnings for investing in FuelCell. As flagged by Stock Rover, the short percentage of its stock float is 11.8%.
The warnings also highlight the company posting negative cash for nearly a decade. This suggests that unless revenue outpaces expenditures, FuelCell will keep coming back to the equity market to sell shares. It will raise cash while diluting existing shareholders.
Analysts are equally cautious on FuelCell’s prospects, although only three analysts cover the stock. All of them rank the stock as a “hold” with a $6.75 price target (according to Tipranks).
No one knows when the clean energy bubble will end. The sector is fraught with companies like FuelCell promising zero-emission solutions. Yet, costs keep climbing and losses continue to mount.
The stock will reward swing traders who are nimble enough to get in and out of the stock before the market does. Buy-and-hold investors should look elsewhere. Chances are high that FuelCell will trend lower, failing to recover from recent stock price peaks.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.