FuelCell (NASDAQ:FCEL) has been steadily declining throughout 2021. But FCEL stock got an earnings-inspired bump after its fiscal third -q1uarter results, reported on Sept. 14, beat analysts’ average outlook. And with the short interest in the name hovering around 14%, it looked like traders were planning to profit from a short squeeze.
However, FCEL stock has been losing momentum lately, supporting the bears’ arguments. While the hydrogen fuel sector may get a boost from the bills pending before Congress, there simply are better options than FCEL stock in this space.
If It Was Easy, It Would Already Have Been Done
No matter what you believe about climate change, it’s easy to see the appeal of hydrogen fuel cells. By generating power with clean water as the only byproduct, fuel cells provide the world with a straightforward, elegant way of reducing fossil fuel emissions.
However, one of the flaws of hydrogen fuel cells in general and of FuelCell in particular is that producing hydrogen is complex. That problem undermines the outlook of FCEL stock. And particular care must be taken to store hydrogen safely. Both of these attributes currently make hydrogen production costly and inefficient.
And as the saying goes, if it was easy it would already have been done. General Motors (NYSE:GM), for example, has been working on fuel cells for 50 years. That gives the company a high degree of institutional knowledge about the subject.
But that knowledge is only now beginning to translate to products that may start to generate revenue for GM.
Right Idea, Wrong Place
FuelCell produces large-scale fuel cell energy platforms that convert hydrogen to electricity. The company currently has a pipeline of 43 megawatts of energy deals.
As Mark Hake, another InvestorPlace columnist, describes in some detail, it’s difficult for the company to recoup its equipment expenses in a timely, efficient fashion. In fact as Hake writes, FuelCell has negative gross margins. And for that situation to change, it will need a significantly larger pipeline.
Now consider the $3.5 trillion budget supported by most Congressional Democrats. If the bill passes in its current form, billions of dollars will be invested in hydrogen. However, a significant portion of that money is likely to be spent on incentivizing the use of hydrogen fuel cells in the transportation sector. FuelCell is not in that business.
Cash Is King
In January, in a previous column about FuelCell, I wrote:
“Without outside capital, it will continue to have to initiate share offerings to fund its growth. There’s nothing wrong with that, and if the technology rises up to meet the political moment, FCEL stock could move significantly higher. “
This is going to be a sector in which companies will need a massive amount of cash to be competitive. And a quick look at the competition shows that FuelCell is being left behind. Plug Power (NASDAQ:PLUG) is the leader in the cash race with $4.5 billion, followed by Ballard Power (NASDAQ:BLDP) which has $1.2 billion of cash. FuelCell, by contrast, has just $139 million of cash.
But the story gets even more problematic when we consider each company’s debt. Plug Power has a very manageable debt load of $705 million. Ballard Power’s debt is negligible. FuelCell, however, has $92 million of debt. So its cash is only $47 million higher than its debt total, creating a problem.
There are Better Options Than FCEL Stock
Since there are still pandemic relief funds that haven’t been spent yet, I won’t hold my breath waiting for any new bills passed by Congress to change America.
But even if clean energy triumphs in the U.S., there are simply better options to capitalize on that transformation than FCEL stock. Indeed, a company with minimal cash and a pile of debt is not an appealing way to play this trend.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinionsOn th expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.