It seems like yesterday that environmentally friendly fuel-cell systems provider FuelCell Energy (NASDAQ:FCEL) was all the rage on Wall Street. Lately, however, FCEL stock has been a money loser for investors.
It’s sensible to check FuelCell Energy’s financials carefully – and considering the unfavorable value proposition of the shares now, it’s hard to give them anything higher than a “D” rating.
Sure, you might be tempted to take a position in FuelCell Energy because the share price moves fast. The pursuit of fast action might be fine for short-term traders. Serious long-term investors should look under the hood and consider a company’s fundamentals, however.
FuelCell Energy doesn’t pass a basic common-sense test because the company is spending much more capital than it’s generating. As long as FuelCell Energy’s expenses continue to expand, alternative-fuel sector investors should seek growth and value elsewhere.
What’s Happening with FCEL Stock?
It might be hard to believe now, but FCEL stock briefly traded at $26 in early 2021. After that, it was all downhill and 2022 has been brutal for FuelCell Energy shareholders.
Sure, you might be tempted to pick up some FuelCell Energy shares at less than $4. Is every seemingly cheap stock actually a bargain, though?
This is the billion-dollar question as 2023 probably won’t be an easy year for FuelCell Energy’s investors. Bear in mind, FCEL stock has a five-year monthly beta of 3.58. In other words, it’s a highly volatile asset, and you’ll want to have good reasons to take on this much risk.
The oil price has come down significantly from $130 per barrel, so maybe the air has come out of the tires for an alternative-fuel business like FuelCell Energy. Or maybe, the company simply isn’t demonstrating enough fiscal discipline.
FuelCell Energy’s Financial Stats Are Alarming
It’s definitely a problem when a business is losing more money than it’s taking in. Sometimes, this is due to an increase in financial outlays. FuelCell Energy’s Form 10-Q for the quarterly period ended July 31, 2022, indicates that the company may have a bad spending habit.
Consider that FuelCell Energy’s net earnings loss more than doubled to $28.977 million during that quarter, versus $11.997 million during the year-earlier quarter. How could this have happened?
During that same time frame, FuelCell Energy’s administrative and selling expenses grew from $8.662 million to $14.158 million. Furthermore, the company’s research and development expenses ballooned from $3.023 million to $9.659 million.
Keeping costs under control is just as important in the alternative-fuels industry as it is anywhere else. Going forward, FuelCell Energy should commit to reducing its overhead, and then stick to that commitment.
What You Can Do Now
Is FCEL stock a bargain after falling so much this year? Not really, as the stock is volatile and the risks outweigh the potential rewards.
Assigning a “D” rating to the shares is justified because there’s no compelling reason to believe that FuelCell Energy will stage a miraculous turnaround in 2023. FuelCell Energy needs to demonstrate a commitment to cost reduction before its financial situation gets worse. Until that situation changes, prospective investors would be wise to exercise extreme caution.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.