At This Point, FuelCell Energy’s Future Is as Bleak as It Gets
Green energy stocks have been rallying as the Joe Biden administration continues to push its eco-friendly policies forward. And leading fuel-cell solutions provider, FuelCell Energy (NASDAQ:FCEL), is among the biggest beneficiaries of that improved investor sentiment. Basically, the green-energy mania has taken FCEL stock and others parabolic.
In the last three months, FCEL has risen by nearly 1000% despite no noteworthy improvement in its business. In fact, its recent mixed results and bleak prospects have been masked by the market’s frenzied state these days.
Of course, the clean energy sector has been on the radars for most investors in the past few years. Most companies in the sector are unprofitable, though. It’s hype that’s made them popular day-trading vehicles for short investors.
The same goes for FuelCell Energy, which is currently trading at an outrageous valuation. Its forward price-sales ratio of 82.54 is over 5000% higher than the sector average. Numbers like that can never be the result of a rational market. So, it’s best to steer clear of this name.
FCEL Stock: Earnings Review
The first bearish mark against this is company is that it recently reported disappointing fourth-quarter results.
For Q4, revenues and earnings fell short of analyst estimates and declined on a sequential basis. For example, the company had a loss of 8 cents per share of FCEL stock, as opposed to the loss prediction of 4 cents. Moreover, revenues of $17 million narrowly missed estimates.
Revenues did improve 54% on a year-over-year (YOY) basis, though, as well as 17% on a full-year basis. Within that, service revenues shot up by 623% to $5.4 million and advanced technologies revenues climbed 48% to $6.4 million. But on the flipside, generation revenue was down 6%. Plus, the company’s backlog dropped to $1.29 billion, a move of 2.5%.
Finally, net loss was at $18.9 million for the quarter, an improvement from the company’s $35.2 million loss in the prior-year quarter. However, on a sequential basis, FCEL’s loss actually widened by a fair margin. Reduced operating expenses had aided the net loss reductions for the quarter, due to restructuring initiatives.
Future Revenue Prospects
When it comes to securing its future, FuelCell Energy has tried hard to make inroads outside the U.S. market, but so far it has failed to do so. On top of that, some of its significant contracts within the States are now also in jeopardy. That further complicates things.
For instance, the company had entered into an exclusive licensing agreement with South Korean energy company Posco (NYSE:PKX) through 2023. However, both companies had a falling out and filed lawsuits against each other. FuelCell now plans to enter into the South Korean market directly, but the Posco drama will likely impact its reputation in the market.
On the European front, FCEL has also been ineffective in winning any product sales. More importantly, though, it appears to have lost two big follow-on contracts in New York, due to exclusion from the state’s Climate Leadership and Community Protection Act (CLCPA). These two contracts were the biggest wins for FuelCell in the last few years. They had represented a significant portion of its operating portfolio.
Finally, the energy firm is also trying to restore three recently rescinded projects in Connecticut, but whether it can do so remains unclear. So, the future looks incredibly dim for FCEL stock.
Basically, FuelCell Energy has a very rocky road ahead of itself. Earnings results have been falling short of expectations for several quarters now and its net loss continues to be a thorn in the side.
The company’s revenue prospects are perhaps more disconcerting, though. Several of FuelCell Energy’s key projects have been taken away. So, there’s not a lot for investors to look forward to with FCEL stock. It’s best to avoid it at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.