In recent weeks, we’ve learned about the raw power of social media to influence not only the biggest moves on Wall Street but also to turn the investing institution upside down. With the right narrative, previously out-of-favor companies, such as FuelCell Energy (NASDAQ:FCEL), can enjoy outsized gains. But how sustainable is such a dynamic for FCEL stock?
On surface level, you may be tempted to dive in, if only for the fear of missing out (or FOMO as the kids like to call it). The numbers truly speak for themselves. In the trailing one-year period, FCEL stock has gained nearly 1,300%, a staggering figure. And the momentum is carrying into the new year, with shares up almost 124% since the January opener.
As well, we’ve seen failing organizations that are on the cusp of bankruptcy enjoy a reprieve because of social media. Since FCEL stock is associated with intriguing scientific substance, its rally at least has some fundamental substance.
Indeed, one of FuelCell’s businesses that makes a speculative shot at FCEL tempting is hydrogen storage. According to the company’s website, its “SureSource Storage solution is a developing, market-driven energy storage system that utilizes solid oxide electrolysis cells (SOEC) to affordably and efficiently convert excess power into hydrogen, an energy carrier, for long duration storage applications.”
As you know, the Biden administration has promised to push various environmentally friendly policies. That bodes well for renewable energy companies, along with businesses that are tied to battery storage systems that can hold excess energy produced by these intermittent sources.
Unfortunately, storage degradation is a drawback for batteries. Further, batteries cannot be charged/discharged fully for fear of damage or degradation. Hydrogen storage has no such issue, theoretically making it a more viable solution. Still, you’ll want to avoid the temptation of going all-in.
FCEL Stock Needs Both Science and Practicality
Back in late 2019, Kawasaki Heavy Industries (OTCMKTS:KWHIY) made headlines when it launched the world’s first ocean-going liquid hydrogen vessel. This was a massive signal of intent to utilize hydrogen as a next-generation fuel alternative.
It sounds promising because of the net zero emissions of hydrogen-powered transportation. While virtually all of the hydrogen produced today derives from fossil fuels, carbon capture and storage (CSS) technology – one of the other businesses underlining FCEL stock – could potentially mitigate emissions from the hydrogen production process. Further, renewable-energy-sourced hydrogen could help pick up the slack.
However, as S&P Global states, this will not be an easy feat. “The Hydrogen Council believes hydrogen can address 18% of global energy demand and abate one fifth of carbon emissions. But it won’t come cheap. Scaling up the hydrogen economy will take investments of $20 billion-$25 billion each year through through 2030, the council says.”
In other words, the scientific case for FCEL stock is undeniable. But investors stake their capital on the growth and profitability of an enterprise. And that’s where the narrative has always been tricky for FuelCell Energy. As InvestorPlace contributor Muslim Farooque pointed out, the trickiness may be catching up to the firm:
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.
You can gamble on FCEL, no doubt. But you’d be doing so mostly on emotions, not the fundamentals.
Clean Energy Not So Clear Cut
Interestingly, the S&P Global report made an interesting parting question regarding hydrogen-related infrastructural integration. “Customers also have a role to play. Are they willing to absorb higher costs from new carbon capture and storage (CCS) projects, or to help pay for emerging electrolyzer technologies to decarbonize energy use?”
I would propose the answer is no, at least not during this pandemic and recession. If you look at initial jobless claims in the U.S., they remain consistently elevated. Further, the personal saving rate moved higher in December 2020, which is an indication of consumer fear. If they weren’t concerned about society, they’d be spending money, not saving it.
Overall, the U.S. business sector has done a great job responding to the pandemic, yet the economy is still reeling. Therefore, the pain throughout the world is likely on the same level as the U.S., if not noticeably worse. So I don’t believe that consumers are willing to pay for clean energy just for the sake of helping the environment.
This adds more pressure to the upside narrative of FCEL stock. Although I wouldn’t dare short it, I think stakeholders who are already deeply profitable should consider taking some off the table. We’ve already witnessed how even the most emotional of social media trades cannot rise indefinitely.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.