I get why investors have aggressively bid up “clean energy” stocks like FuelCell Energy (NASDAQ:FCEL). With the incoming President much more favorable to “green” policies than his predecessor, we could see this growing sector and FCEL stock benefit from federal support as well as policy changes. Plus, the business community is continuing to pivot towards green initiatives.
Yet, it’s no slam dunk that potential changes in U.S. energy and environmental policies will alter the game much for FuelCell. Not only that, with more pressing matters at hand, Joe Biden’s $2 trillion green energy plan may wind up on the back burner for now.
Moreover, besides the uncertainty of whether the blue wave means blue skies for FuelCell, there are other factors that should make you cautious about diving in at today’s prices.
Put simply, there’s little backing up this stock’s blockbuster rally over the past few months. So, if you bought FCEL at lower prices, sell into strength while you can. And, if you don’t already own it? Avoid.
FCEL Stock and Blue Wave Speculation
FuelCell shares performed well for most of 2020. But, it wasn’t until after election day that this green stock went into hyperdrive. With speculators taking the news of Joe Biden’s electoral victory and running with it, shares soared from $2.32 per share on Nov. 3 to $11.17 per share on Dec 31.
Now, with the “blue wave” Senate election results recently out of Georgia, this stock went parabolic yet again. On Jan. 5, it soared from $11.20 per share to above $19 per share on Jan. 13. In total, that’s a more than eightfold increase in just over two months. Right now, the stock sits around $16.
But is this epic move higher justified? Hardly.
Yes, we will likely see changes with the new administration, changes that could give a massive boost to the emerging clean energy sector. However this potential tailwind has long been priced into FCEL stock. Even when shares traded for single digits.
In short, it’s speculation, not actual changes to its fundamentals, that have fueled this rally. And what does that mean? Once enthusiasm for the sector fades, don’t count on this stock holding onto much of its recent gains.
Not Much on the Table for FuelCell in 2021
When last discussing FCEL stock on Jan. 11, I talked about the limited news out of this company since its blockbuster rally. Unlike some other green wave stocks — which have had some positive developments outside of election results — this clean energy play has little to speak of.
Instead, the only developments from the company have been negative. Not materially negative, but hardly cause for celebration. Between losing some major projects they had previously won and falling short of fourth quarter expectations, we’ve received little indication that things are looking up for FuelCell.
Yet, thanks to the market’s current high enthusiasm, this hasn’t made a difference. Instead of falling lower on disappointment, shares have continued to rally on misplaced optimism. As a result, today FCEL trades at an unsustainable valuation.
More specifically, At today’s prices, shares trade for a staggering 79.1 times forward price-sales. Some fast growing companies may be able to justify such a high forward multiple. But, with its sales growth for this year coming in at just 23.4%, the current growth premium priced-in seems overdone.
Taking this into account, it’s clear those buying today are banking that the bubble in green wave stocks will carry on. However, while you can’t predict when the music’s going to stop, all bubbles eventually pop. So, with FCEL stock more likely to head lower than higher from here, don’t take the chance.
Take The Money and Run
Granted, this company — which sells fuel cells for end users like little-to-no-emission power generation stations — may be in the right business at the right time. For instance, we don’t know yet for sure whether Biden will be able to follow through on that $2 trillion infusion. But we do know that this sector isn’t disappearing anytime soon, with big business and the government at least on-board for going green.
Yet, there’s still little justification for the more than eightfold rally in FCEL stock since election day. Its prospects? Lukewarm. Its valuation? Unsustainable. Put that all together and there’s little chance that the shares will hold onto their gains when the enthusiasm dissipates.
The bottom line? If you own FCEL, sell into strength and pronto. And, if you haven’t bought FCEL yet, avoid today’s lofty price levels at all costs.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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