FuelCell Energy Needs a Jolt to Its Core Fundamentals

In early February of this year, I suggested to InvestorPlace readers that now might be a time to sell shares of FuelCell Energy (NASDAQ:FCEL) into strength. To be completely blunt, I haven’t been the most ardent supporter of FCEL stock.

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

Certainly, I missed its massive leg up. But I’m also a realist and I felt this speculative fervor wouldn’t last.

Turns out, I was right. Just a few days following the publication of my write-up, FCEL stock began printing red ink. Slowly at first but in later sessions, the crimson barrage came barreling down the pipeline. After finding some initial support at its 50-day moving average, FCEL reinitiated its descent. At time of writing, shares are straddling the 200-day moving average.

Don’t worry – I’m not going to pat myself on the back too much, if at all. On Jan. 12, I mentioned that FCEL stock was ripe for profit-taking. Eventually, I was right. But for speculators, they could have bagged a 47% profit. Plus, I also mentioned on Dec. 9 of last year that FuelCell’s ride may soon be coming to an end. Yes, but not before bagging a 243% profit.

Therefore, I’ll freely admit that I haven’t been the sagest voice of reason when it comes to FCEL stock. If anything, my coverage has been one giant opportunity cost. Nevertheless, I’m glad that at this moment, I can at least state that I didn’t feed into the pandemonium.

Whether you’re talking about FCEL stock or any other hot momentum trade, it’s important to realize that nothing goes up indefinitely. Eventually, even the most bullish traders lose their nerve and cash out. Those that don’t get cashed out upon, which isn’t a great place to be.

Probably, this is what drove the hemorrhaging in FuelCell shares.

FCEL Stock Needs More Than a Fine Story

Currently, a lot of negative buzz exists surrounding a recent downgrade on FCEL stock. Shares closed down 6.7% on the Tuesday session following Wells Fargo analyst Praneeth Satish’s initiation of coverage of FCEL as “underweight,” with a price target of $9.

Certainly, it’s not helpful that an analyst ranked FCEL stock with an equivalent of a “sell” rating. Still, the volatility in FuelCell shares began well before the Wells analyst entered the frame.

When I last discussed the company, I mentioned that its SureSource Storage solution presented a compelling take on the broader push for clean and renewable energy. Primarily, renewable energy sources like wind and solar have a major drawback: they’re intermittent. Obviously, the sun doesn’t shine all day, nor does the wind blow eternally. What you need to make green energy viable, then, is energy storage.

However, storage degradation is an obstacle for traditional battery storge solutions. That’s where FuelCell offers a much-needed alternative with its hydrogen-based platform. Hydrogen is an effective energy carrier for long-duration storage applications. On paper, it’s perfect for putting the Biden administration’s long-term plans for net-zero emissions into action.

Scientifically, we’re at a fascinating crossroads. But from an investor’s perspective, patience is running out. Despite the incredibly positive implications of hydrogen-based storage solutions, they’re not printing well fundamentally. For instance, in its quarter ended Jan. 31, FuelCell delivered revenue of $14.9 million, down 8.5% from the year-ago quarter.

Needless to say, that’s not what analysts were looking for in light of growing interest in renewable energy. Further, other key metrics were left wanting. Net income loss widened in the most recent quarter to nearly $46 million from $40 million a year earlier. It was the same story regarding negative free cash flow.

Yes, FuelCell has an awesome narrative. But some of that awesomeness has to translate to fiscal substance. It didn’t, which soured prospective buyers on FCEL stock.

It’s Do or Die for FuelCell

While the trailing month has not been a good one for the alternative energy firm, it must be said that the company has enjoyed a remarkable year. Indeed, over the last 365 days, FCEL stock is up 476%. That’s probably going to change by the time you read this (and I’m guess for the worse) but it’s still a notable achievement.

Unfortunately, the market is not in the business of rewarding past accolades. This is a cruel what-have-you-done-for-me-lately business and FCEL stock is at risk of tumbling back down to the $2 to $3 range. I’m not being hyperbolic. Technically, there’s no nearer-term support between where FCEL is right now (again, straddling its 200-day moving average) and the range just before it began its remarkable rally (mid-November).

Therefore, my take remains the same. If you’re still profitable on FCEL, you may want to book those profits. And if you’re thinking about advantaging the discount, I’d wait. You could be looking at a much better rate in the next few months.

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

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2021/04/fcel-stock-needs-jolt-to-fundamentals/.

©2021 InvestorPlace Media, LLC