Integrated fuel cell company FuelCell Energy, Inc. (FCEL), in Danbury, Conn., on November 2 signed a six-month extension with Exxon Mobil Corporation (XOM) to continue collaborating on carbonate fuel cell technology. Over the past three months, the stock soared 25.1% in price to close yesterday’s trading session at $7.97. This is partly due to investors’ optimism surrounding the passage of the bi-partisan infrastructure bill, which includes $9.50 billion to accelerate the development of clean hydrogen technology. In addition, the stock soared in price in October on retail investor interest.

However, it is uncertain if the infrastructure bill-related funding will directly benefit FCEL. The stock has lost 16.4% in price over the past month and 28.7% year-to-date.

Also, the company had entered an open market sale agreement in June 2021, pursuant to which it may, from time to time, offer and sell shares. This could lead to share dilution. In addition, FCEL reported losses in the last reported quarter. So, the stock’s near-term prospects look bleak.

Here’s what could influence FCEL’s performance in the near term:

Industry Headwinds

With increased climate change concerns and favorable government policies, it is no surprise that the hydrogen industry has been subject to investor attention. However, according to an International Energy Agency (IEA) report, low-carbon hydrogen demand for new applications remains low, limited to road transport only. Furthermore,  the hydrogen storage is too volatile, the costs are pretty high, and there are infrastructural challenges. So, FCEL’s business may be hurt because its carbonate fuel cell technology generates electricity directly from a hydrogen-rich fuel.

Weak Profitability

FCEL’s total revenues increased 43.2% year-over-year to $26.82 million for its fiscal third quarter, ended July 31, 2021. However, its loss from operations came in at $10.59 million compared to $10.76 million in the prior-year period. In comparison, its net loss was $12 million compared to $15.33 million in the year-ago period. Also, its adjusted EBITDA was negative $5.17 million, versus $5.64 million in its fiscal third quarter of 2020.

In terms of trailing-12-month gross profit margin, FCEL’s negative 14.87% is lower than the 29.55% industry average. The stock’s negative trailing-12-month EBITDA margin is lower than the 13.51% industry average. In addition, its trailing-12-month ROCE, ROTC, and ROTA are negative versus the 13.58%, 6.75%, and 5.16% respective industry averages.

Unfavorable Analyst Sentiment

Analysts expect FCEL’s revenue to increase 8.5% year-over-year to $76.93 million in its fiscal year 2021. However, the company’s EPS is expected to remain negative this year and next year. Moreover, Wall Street analysts expect the stock to hit $7.33 in the near term, which indicates a potential 8% decline.

POWR Ratings Reflect Bleak Outlook

FCEL has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. FCEL has an F grade for Quality, which is in sync with its lower-than-industry profitability ratios.

The stock has an F grade for Stability, which is consistent with its 4.65 beta.

Also, FCEL has an F grade for Value, which is in sync with its forward EV/S and P/S of 38.36x and 41.35x, respectively, which are higher than the 2x and 1.59x industry averages.

In addition to the POWR Rating grades I have just highlighted, we have also rated the stock for Growth, Sentiment, and Momentum. Get all the FCEL ratings here.

FCEL is ranked #85 out of 92 stocks in the Industrial – Equipment industry.

Bottom Line

Many expect the recently passed infrastructure bill to act as a catalyst for FCEL’s growth. However, the stock is volatile and is currently trading 72.9% below its 52-week high of $29.44, which it hit on February 10, 2021. Also, Wall Street analysts expect it to decline further in the near term. So, we think it could be wise to avoid the stock now.

How Does FuelCell (FCEL) Stack Up Against its Peers?

While FCEL has an overall POWR F Rating, one could check out these A-rated stocks within the Industrial – Equipment: Compagnie de Saint-Gobain S.A. (CODYY), Standex International Corporation (SXI), and Applied Industrial Technologies, Inc. (AIT).