FuelCell Energy (NASDAQ:FCEL) has fallen from grace after peaking at over $29 in mid-February. Speculators dumped FCEL stock ahead of the company’s first-quarter quarterly earnings report on March 16.
Bottom fishers briefly took FuelCell’s shares back over $18 at the beginning of March, only to lose momentum. Then on March 16, its Q1 results showed that the company’s fundamentals had worsened last quarter. The company’s earnings are likely to weaken further in 2021, giving short sellers in the name a good chance to profit.
Bullish News Fails to Ignite FCEL Stock
On March 12, FuelCell announced that it was joining Hydrogen Europe, which represents the interests of the hydrogen/fuel cell sector on the continent. The company will connect with other firms that are also advancing the hydrogen economy. But, in its press release announcing the news, FuelCell did not suggest that it would directly generate any revenue from the association., so investors may understandably ignore the news.
Weak Q1 Results
FuelCell’s Q1 gross loss of $3.6 million was disappointing. In the same period a year earlier, it posted a gross profit of $3.3 million. Last quarter, its losses from operations rose to $14.4 million, compared to a loss of $3.1 million in Q1 of 2020. The company’s backlog of $1.27 billion, however, offers hope for FuelCell’s shareholders.
At the end of the quarter, FuelCell Energy had $209.6 million of cash. Financing activities added $52.4 million to its cash total, but that was more than offset by the company’s reduction of its debt by $82.3 million.
In its Q1 earnings call, FuelCell highlighted its customers, including Toyota (NYSE:TM) and Pfizer (NYSE:PFE). Himax Technologies (NASDAQ:HIMX), which is similar in size to FuelCell, also has an impressive customer list. Himax eventually wound down its unprofitable projects, and the revenue from its new products boosted its overall results.
Limited Opportunity for Investors
But FuelCell’s constant stock sales are limiting the gains of FCEL stock. In Q1, it completed a stock offering that added $156.4 million to its balance sheet. Those funds have improved its debt/equity profile and will lower its interest expenses going forward. They will also help the company finance its projects more effectively.
In recent weeks, FuelCell announced two main achievements First, it successfully started testing a prototype for a solid oxide electrolysis hydrogen platform. This is appealing because this electrolysis technology could be used to make hydrogen which can power transportation without emitting any carbon.
Second, FuelCell advanced its joint research with ExxonMobil’s (NYSE:XOM) Research and Engineering Company on fuel cell carbon capture solutions. Carbon capture is a key step in reducing greenhouse gas emissions.
Valuation
None of the Wall Street analysts covering FuelCell had a “buy” rating on FuelCell stock as of the end of last week. According to Tipranks, their average price target on the shares is only $11.00. The company also compares unfavorably to its peers like Ballard Power Systems (NASDAQ:BLDP). This enterprise value to EBITDA multiples chart compares the valuations of firms in similar industries to each other and indicates that FCEL stock is worth under $5.00.
Meanwhile, Simplywall.st reported that analysts do not expect FuelCell will post a profit until 2024.
Momentum investors who recognized the negative sentiment shift towards FuelCell’s shares have avoided losing much money on this stock recently. The company is unlikely to report any news in the near-term that will make the market less bearish on it. T
here are better opportunities in the clean-energy space. Avoid companies that repeatedly posted quarterly losses, including FuelCell Energy.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
