FuelCell Energy (NASDAQ:FCEL) has had a remarkable three-month run. Trading near $100 just five years ago, FuelCell plummeted to penny stock status in 2019. For most of 2020, FCEL stock was trading below $3. But last November, with Joe Biden elected President on a Green New Deal platform, shares in this fuel cell power plant company exploded.
FCEL stock has posted growth nearing 625% over the past three months. The latest boost came from a Department of Energy (DOE) announcement of funding for the hydrogen industry — resulting in a one-day 14% gain.
However, the company just reported mixed fourth quarter earnings and FCEL stock is down in pre-market trading. Is now the time for a FuelCell Energy investment? The company’s shares are caught up in the frenzy over hydrogen stocks. All bubbles eventually burst, but the Green New Deal may keep this one going for a while.
Riding the Hydrogen Wave
Stocks connected to the hydrogen industry experienced rapid growth in November, thanks to the election of Joe Biden as President. Biden’s Green New Deal promises $1.7 trillion in spending over the next decade with the goal of achieving a 100% clean energy economy with net-zero emissions by 2050 at the latest. As a company that builds hydrogen fuel cell power plants that also produce hydrogen for use as a fuel, FuelCell Energy is going to benefit from this policy.
On Jan. 15, the hydrogen sector got a taste of what is to come. The DOE announced $160 million in funding to “Improve Fossil-Based Hydrogen Production, Transport, Storage, and Utilization.” Eager investors pushed FCEL stock up 14% on that news.
FuelCell Energy’s CEO summed up the current situation perfectly in the company’s third quarter earnings report:
The hydrogen economy is currently enjoying unprecedented political and business momentum, and we are well positioned to capitalize on opportunities consistent with our goals.
The key here is the “unprecedented” momentum, and whether it can keep up a pace sufficient to justify FCEL’s valuation.
In the company’s fourth quarter earnings release, that sentiment was repeated:
Based on the initial policy objectives outlined by the incoming White House administration, we expect clean energy and climate policies in the U.S. to begin to match the pace of advancement seen in other markets such as Europe and Asia, and to be favorable toward development of the growing hydrogen economy.
FuelCell’s Third and Fourth Quarters
The company’s third-quarter earnings proved to be a preview of what’s happening today. Last September, FuelCell revenue far surpassed analyst estimates, although it was still down 18% year-over-year. Adjusted losses per share of 6 cents were off analyst estimates by a penny, but were a huge improvement over the 18 cents per share loss reported the prior year.
The market reaction then was to drag down FCEL stock by a punishing 16%.
FuelCell Energy delivered Q4 earnings after the bell on Wednesday. Adjusted losses per share of 8 cents were once again slightly worse than the 7 cent loss analysts had been expecting. However, revenue was once again a beat, rising 54% YoY to $17 million. The market reaction so far has been a repeat, although not to the same degree. FCEL stock has been down by nearly 6% in pre-trading.
Bottom Line on FCEL Stock
The long-term picture for FuelCell Energy is a positive one. Finally, the timing seems right for hydrogen power and I suspect the $160 million announced for the industry by the DOE is just the beginning. However, the excitement over the sector has overheated the situation. I’m worried that FCEL stock has gained too much, too fast. In addition, those mixed Q4 earnings are going to shake things up in the short term.
I’m seeing much the same feeling among investment analysts. Those polled by The Wall Street Journal have FCEL rated as a “hold” with a $10.90 average price target. Last week J.P. Morgan analyst Paul Coster downgraded FCEL to “sell” with a $10 price target.
I’ll be closely watching FuelCell Energy’s progress over the next year, and I expect to see good news. However, I’ll be waiting for FCEL stock to come back down to Earth a bit before making a move on that front.
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.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.