You take your eyes off a stock for a few months, and of course, it powers higher. That’s definitely the case for FuelCell Energy (NYSE:FCEL) and FCEL stock.
I last wrote about the company in August. It was trading around $2.60. As I write this, it’s around $8.20, 215% higher over the past four months. At the time, I suggested that Bloom Energy (NYSE:BE) might be a safer bet. Bloom’s stock is up 99% over the same period.
I’m sorry if my opting for BE made you think twice about buying FCEL under $3.
However, if I had to do it all over again, I’d make the same call. That’s because as we head into 2021, Bloom Energy has a market capitalization of $4.3 billion, 65% higher than the provider of proprietary molten-carbonate fuel cell technology.
Heading into 2021, FCEL has gotten much closer in size to Bloom. That doesn’t necessarily make it the better buy. Here’s why.
Top and Bottom Lines
Bloom’s Energy Servers were deployed at approximately 700 locations in the U.S. and elsewhere. If you’re a fan of the New England Patriots, the NFL team has 2 megawatts of Bloom Energy Servers at Gillette Stadium in Foxborough, Massachusetts.
On Oct. 29, it announced Q3 2020 results. On the top line, its sales were $200.3 million, 10.7% less than a year earlier. On a sequential basis from Q2 2020, sales rose by 6.6%. On the bottom line, it lost $12 million, down considerably from $51.8 million a year earlier.
Based on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), its earnings in the third quarter were $27.7 million, 20.6% lower than a year earlier, driven primarily by an upgrade of its PPA II (power purchase agreement) in Q3 2019.
As for FuelCell, it had revenue of $18.7 million in Q3 2020, 17.6% lower than a year earlier. On the bottom line, it had a net loss of $15.3 million, 188.6% higher than in Q3 2019. On an adjusted EBITDA basis, it lost $5.6 million during the quarter compared to $3.2 million a year earlier.
FuelCell lost more than Bloom in the latest quarter on a GAAP basis from one-tenth of the revenue base.
And while I get the excitement about its fuel-cell products, I have a hard time understanding why someone would pay 25 times sales for FCEL when they can pay four times sales for Bloom?
Are we really talking about apples and oranges here?
A Change in the Landscape
The Wall Street Journal published an article on Dec. 8 suggesting that cheaper forms of distributed power disrupted bloom Energy’s plan to disrupt the power grid. Its stock took an 18% hit on the news.
However, New Orleans-based investment bank Johnson Rice saw it as an opportunity, initiating coverage with an “accumulate” rating and a $32 target price. That’s 24% upside over the next 12 months. By comparison, the five analysts covering FCEL have a target price of $5, 39% lower than where it’s currently trading.
A recent article from Seeking Alpha contributor Tim Worstall confirms what WSJ’s article said about Bloom Energy severely underperforming over the past decade. And that does give me pause to continue recommending BE stock.
“SOFCs are not the same as computer chips but there are similarities. Moore’s Law doesn’t apply, but some much weaker version of it should. Again, this is not an exact comparison but an analogy,” Worstall wrote on Nov. 30.
“Gold plating of connectors inside computers has gone from perhaps 200 nm thick to 2 nm thick over the past 30 years. Something akin to this should have been happening to those SOFCs.”
At this point, the only thing I know to be certain is that both companies have terrible balance sheets and losses as far as you can throw them.
Through the end of July, FuelCell had a $1.15 billion accumulated deficit, while Bloom’s accumulated deficit was a staggering $3.08 billion as of the end of September. It’s no wonder that both companies have Altman Z-Scores suggesting either of them could go bankrupt within 24 months.
The Bottom Line on FCEL Stock
I’m a fan of renewable energy.
Companies such as NextEra Energy (NYSE:NEE), Brookfield Renewable Partners (NYSE:BEP), and Tesla (NASDAQ:TSLA) excite the heck out of me.
That’s why I believe that Plug Power (NASDAQ:PLUG), which recently signed a deal to get renewable energy from Brookfield for its first green hydrogen production facility, is a much better stock to buy than either FCEL or BE.
I wouldn’t buy them, but Bloom is the lesser of two evils if I had to pick one.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
