Thanks to cutting-edge technology and innovative equipment, the industrial sector is well-positioned to maintain its resilience, despite the existing macroeconomic headwinds and looming recessionary concerns. Given this backdrop, let us bring to light whether industrial equipment stock FuelCell Energy, Inc. (FCEL - Get Rating) could be a portfolio addition.

Even though the Fed signaled to forgo a rate hike in the June meeting, the probability of tightening monetary policy still stands in the future. Also, some experts anticipate a recession could be on the horizon, as layoffs have been soaring, according to a report released by Challenger, Gray & Christmas.

Despite such uncertainties, the industrial machinery sector has been thriving amid technological innovation and is poised to remain buoyed. However, unable to capitalize on the significant tailwinds, stock FCEL, which manufactures fuel cell technology platforms and offers sustainable goods and solutions, has reported losses in its first quarterly results.

Over the past year, the stock has declined 44.1% to close the last trading session at $2.17. Over the past six months, the stock has declined 38.5%. It is trading lower than its 50-day moving average of $2.33 and 200-day moving average of $3.18, indicating a downtrend.

Here are the factors that could affect FCEL’s performance in the near term:

Weak Financials

FCEL’s loss from operations for the first quarter (ended January 31, 2023) stood at $22.46 million. Its net loss and net loss per share attributable to common stockholders were $19.42 million and $0.05, respectively. Also, its adjusted EBITDA loss widened 6% year-over-year to $14.41 million.

For the same quarter, cash, cash equivalents, and restricted cash declined 16.2% year-over-year to $339.78 million.

Stretched Valuation

In terms of its forward EV/Sales, FCEL is trading at 4.89x, 207.6% higher than the industry average of 1.59x. The stock’s forward Price/Sales multiple of 6.36 is 411.4% higher than the industry average of 1.24.

Poor Profitability

FCEL’s trailing-12-month EBIT and net income margin are negative 88.77% and 88.92% compared to the industry averages of 9.70% and 6.42%, respectively. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.16x is 80.6% lower than the industry average of 0.80x.

Disappointing Analyst Estimates

Analysts expect FCEL’s EPS for the fiscal second quarter (ended April 2023) to be negative $0.08. Its revenue for the fiscal third quarter ending July 2023 is expected to decline 23.8% year-over-year to $32.83 million.

Moreover, Street expects the company’s EPS to come in at a negative $0.28 for the current year (fiscal 2023) and a negative $0.26 for the next year (fiscal 2024). Furthermore, the company failed to surpass the consensus EPS estimates in three of the trailing four quarters.

POWR Ratings Reflect A Somber Outlook

FCEL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FCEL has a Stability grade of F, in sync with its five-year beta of 3.67.

The stock also has an F grade for Quality, consistent with its poor profitability. FCEL’s higher-than-industry valuation justifies its Value grade of D.

It has a D grade for Sentiment, in sync with the unfavorable bottom-line estimates.

It is ranked #80 within the 91-stock Industrial – Equipment industry.

Beyond what we have mentioned above, to see the other ratings of FCEL (Growth and Momentum), click here.

Bottom Line

Coupled with a challenging macroeconomic environment, FCEL’s weak financials, deteriorating bottom line, and unfavorable estimates are putting pressure on the stock. Hence, it could be wise to avoid this fundamentally weak stock now.

Stocks to Consider Instead of FuelCell Energy, Inc. (FCEL)

Unfortunately, the odds of FuelCell outperforming in the weeks and months ahead are greatly compromised. However, there are many Industrial stocks with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) Industrial – Equipment stocks instead: EnerSys (ENS - Get Rating), Preformed Line Products Company (PLPC - Get Rating), and LSI Industries Inc. (LYTS - Get Rating).

What To Do Next?

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FCEL shares rose $0.05 (+2.30%) in premarket trading Friday. Year-to-date, FCEL has declined -20.50%, versus a 11.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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