FuelCell Energy (NASDAQ:FCEL) is up an amazing 87% so far this year and 92% plus in the last month. FCEL stock continues to move up based on rampant speculation. I wrote about this and FCEL’s 1,128% spike in December.
The company has no profits and no prospects of profits. In fact, analysts expect net losses for the next four years. This means FCEL stock remains unmoored to any kind of normal investment reality, with losses now and in the future.
FCEL Stock’s in The Twilight Zone
The company reported its fiscal (Oct. 31) Q4 earnings on Jan. 21. There were more losses, although revenue grew by 54% year-over-year for the quarter.
But the numbers are astounding. Revenue was just $17 million, but net income losses were 100% of that amount, some $17 million. Moreover, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) losses were $8.6 million.
So how in the world does FCEL stock have a market capitalization of $7.09 billion? This is completely unrelated to the numbers the company is presently producing. Everything is on the come up — based on future expectations. (Cue Twilight Zone music.)
Obviously, much of this has to do with the Biden Administration and its bent toward energy transition to alternative fuels.
In addition, the company raised more capital ($156 million) after its Oct. 31 fiscal year-end so it looks like it can last with its losses longer. For example, even though its adjusted EBITDA losses were $8.5 million, the company burnt through $20.5 million in negative free cash flow during the quarter. And after debt repayments, cash use totaled $22.3 million for the quarter.
So you can see that on a run-rate basis, the company could easily use up $100 million or close to over the next year. Without the additional $156 million, the company only had $149.6 million in cash. In other words, it would have run out of money within the next year, unless somehow it turned cash-flow positive.
But don’t count on that anytime soon.
What Management Should Do
Even though FuelCell just raised $156 million, FCEL stock is up at least 100% to 200% since it raised that money. I highly suspect they are going to consider raising more money at this higher price.
If management is not doing that they should be considering it. I always counsel corporate clients in my consulting business to raise capital when they can, not necessarily when they need the money.
The problem is the company’s CNG (compressed natural gas) and LNG (liquid natural gas) business may not be profitable for a long time. This is what the company said on p. 44 of its latest 10-K report:
We have not been profitable since our year ended October 31, 1997. We expect to continue to incur net losses and generate negative cash flows until we can produce sufficient revenues and gross profit to cover our costs. We may never become profitable…
This means the company wants investors to know that it has had a rough time running a profitable business. The company does not even try to forecast when this will happen.
Yet, that’s not a reason for a stock to rise eleven-fold in one year.
What to Do With FCEL Stock
If you are in FCEL stock, you should seriously be considering taking profits. In fact, I suspect that most people in the stock are probably profitable. At some point, they are going to take money off the table, especially given the company’s history. So you might as well be one of the few that does so before others.
I can’t find one analyst that is projecting the company will be profitable. Most analysts have much lower price targets. For example, Tipranks shows that the five analysts on the stock in the last three months have an average price target of $10.25, about half of the current price.
Something does not compute here. How can such a miserable outlook for a company, despite some apparent catalysts, lead to a multi-billion dollar market cap?
It can’t. That is my conclusion.
Look for FCEL stock to come down off its recent spike history as the market wakes up and realizes that it won’t make money. At least not anytime soon. As a result, I would look for ways to sell this stock before it’s too late.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.