Want to tell whether a stock is trading based on fundamentals or speculative momentum? Just use Google News. Input the company name and if most of the stories are about the company and its operations, use fundamentals. If the stories are all about the stock, it’s a momentum play. FuelCell Energy (NASDAQ:FCEL) stock is a momentum play.
Not that there isn’t a real company here. There is. Just not much of one.
FuelCell Energy did about $65 million in business during 2020. Its current market cap is $3.6 billion.
What FuelCell Does
FuelCell Energy makes hydrogen fuel cells. They use hydrogen as a fuel, combining it with oxygen, with water as a byproduct. I first encountered them a decade ago, used by utilities for back-up grid power. They can be turned on quickly and they’re quiet, so they can go into crowded neighborhoods.
The company spent a decade seeking new markets, like wastewater treatment. There, it can use the biogas made by garbage dumps as a fuel stock.
Speculators lump FuelCell in with Plug Power (NASDAQ:PLUG), another fuel cell maker, but they are not competitors. Plug Power makes small fuel cells used in forklifts and other warehouse vehicles because they don’t emit gas. FuelCell is an industrial play.
This play includes the energy industry. FuelCell’s SureSource Recovery can be used where high-pressure gas is offloaded for use by utilities. These “let down stations” can use the “free” energy used by the pressure reduction to generate power. They’re also sold as carbon capture stations for coal-fired power plants.
Why FCEL Stock Is Hot
FuelCell stock is hot because renewable energy is hot. The new administration wants to fight the climate crisis. Clean energy can fight the climate crisis, so the stock can jump as much as 25% in one day.
The problem is that it’s moving on speculation over what Washington is doing, not on changes in its business. Even its boosters admit it’s not making money. FuelCell will report its numbers Jan. 8. Analysts expect a loss of 6 cents per share on revenue of $17 million. Since the November election the stock is up more than 400%.
Most InvestorPlace writers, like Thomas Niel and yours truly, believe in fundamentals. That’s why we’re telling you to fade the gain. This is a “Biden boost,” based on hope rather than value. The hype will wind down and the stock will fall, as Chris Lau notes. It’s rampant speculation, writes Mark Hake.
Even our Louis Navillier, who likes a good speculation, suggested you wait for a pullback on December 16. But over time this is a competent operator in a growing niche. It deserves a place in your portfolio, Navillier wrote recently.
Just, maybe, not at these levels.
The Bottom Line
I’m not a speculator. I avoid stocks selling at 55 times their annual sales. That’s where FuelCell is on Jan. 4.
But I’m also a long-term believer in renewable energy. I’m delighted with the speculation, even though it will end in tears for many speculators.
The best reason to hold off is the company’s own actions. They’re not buying their stock, they’re selling, closing an offering of almost 40 million new shares early in December. Speculators who bought that offering have made money, at least on paper. The stock has nearly doubled since then.
As a company, FuelCell Energy does have a bright future. The cash it raised from its offering can scale production and sales efforts. But if you’re buying the stock today, you’re speculating. Know that, watch it closely, and sell at the first sign of a leak in the balloon.
Once the balloon is deflated, and FuelCell’s value returns to Earth, investors can buy some.
At the time of publication Dana Blankenhorn owned no shares in companies mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.