Embrace the Bearish Sentiment on FuelCell Energy Stock

Judging by the attention it’s been getting on financial message boards and media outlets, it certainly appears that the controversy surrounding FuelCell Energy (NASDAQ:FCEL) won’t subside anytime soon. Apparently, FCEL stock is an asset that many folks either believe in, or oppose vehemently.

a picture of a fuel cell
Source: Kaca Skokanova/Shutterstock

This is what I would call a lightning-rod stock. Opinions on FuelCell Energy are strong, and divided. The same thing could be said about the hydrogen fuel cell market in general, albeit to a lesser extent.

Perhaps it’s because of the wild, roller-coaster price action in FCEL stock, which we’ll examine in a moment. There might also be a political angle here, since not everyone has the same opinion on clean energy versus fossil fuels.

And then there’s FuelCell’s recent financial data release, which can’t be ignored. There’s a lot to unpack here, so let’s start off with a simple analysis of the share price’s latest moves.

A Closer Look at FCEL Stock

As recently as mid-November of 2020, FCEL stock was trading at $2 and change. It’s possible that we might never be able to purchase the shares at that price again.

The stock-price rally from November of last year to February of 2021 was absolutely stunning. In a relentless run-up, the stock topped out at a 52-week high of $29.44 on Feb. 9.

I recall thinking, at the time, that this was probably too far, too fast. And indeed, FCEL stock pulled back from its peak price, landing at $14.35 on April 1.

At this point, I should mention that the stock has a five-year monthly beta of 5.29. This means that the stock has historically tended to move five times as fast as the overall stock market.

Therefore, if you’re going to buy the recent dip in FCEL stock, just be aware that this is a highly volatile asset. For that reason, only small position sizes are recommended.

Data Disappointment

Admittedly, the bears were given some argumentative ammunition in March when FuelCell Energy released its fiscal first-quarter results.

For that quarter, FuelCell sustained a net loss of $46.8 million, or 15 cents per share. During the year-ago period, FuelCell took a net loss of $41.1 million, which would translate to 20 cents per share.

Unfortunately, the recent fourth-quarter result was worse than Wall Street’s consensus estimate of a net per-share loss of 4 cents.

Moreover, Wall Street was bracing for total quarterly revenues of $22.11 million, while FuelCell’s actual result was $14.88 million, representing a decline of 8.5%

In addition, the company’s reported backlog decreased by 7% to $1.27 billion. That figure was $1.36 billion in the year-ago period, and was $1.29 billion during the prior quarter.

It’s going to be challenging for the FCEL stock bulls to argue with those numbers. Nevertheless, there should still be hope for a turnaround in 2021.

A Fast-Expanding Market

When the pessimism reaches peak levels, perhaps it’s time to jump into the long side of the trade.

In January of this year, JPMorgan analyst Paul Coster downgraded FuelCell to the equivalent of a “sell” rating. Coster also assigned the shares a price target of $10.

As it turned out, that would have been a great time to buy FCEL stock, as it soon rallied to its 52-week high price.

Don’t get me wrong – analysts’ price targets aren’t usually meant for the short term. Still, there may be a lesson here: analysts’ opinions should be taken with a sizable grain of salt.

More recently, analysts at Goehring & Rozencwajg Associates have sounded the alarm on FCEL stock.

“Investor euphoria has now reached new heights bordering on mania… Stretched valuations leave investors vulnerable to any setback or delay in the green energy transition,” the analysts warned.

Personally, I don’t see the situation in the same light as the naysayers. According to Allied Market Research, the hydrogen fuel cell market is “projected to reach at $42,038.9 million by 2026, growing at a CAGR [compound annual growth rate] of 66.9% from 2019 to 2026.”

That’s a growth trajectory that not too many other market segments can claim. And, FuelCell Energy’s been around since 1969, and was an early and ambitious entrant into the hydrogen fuel cell industry.

The Bottom Line

It’s undeniable that FuelCell Energy’s recent data release was largely disappointing.

However, that disappointment has, most likely, already been priced into FCEL stock. Besides, FuelCell has been around for a long time and has weathered criticism and pessimism for many years.

So maybe it’s the right time to take a long position – just keep it small, as the share-price action could remain volatile for quite a while.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

Article printed from InvestorPlace Media, https://investorplace.com/2021/04/embrace-the-overwhelmingly-bearish-sentiment-on-fcel-stock/.

©2021 InvestorPlace Media, LLC