On December 19, FuelCell Energy, Inc. (FCEL - Get Rating) is scheduled to release its financial results for the fourth quarter of its fiscal year. Wall Street expects the company to post a loss per share of $0.09 for the quarter. The company’s revenue is projected to decline by 34.8% year-over-year, reaching $25.56 million.

Looking back, in the third quarter of fiscal 2023, reported revenues saw a decline compared to the same prior year period. This was mainly due to lower product revenues from the absence of module sales, contrasting with robust sales of replacement modules to Korea Fuel Cell Co., Ltd. (KFC).

Moreover, the company witnessed a gross loss of $8.22 million, marking an increase from $4.18 million in the comparable prior-year quarter. This escalation is attributed to the absence of module sales during the quarter, in contrast to the third quarter of fiscal 2022, which had benefited from favorable product margins due to module sales to KFC.

Furthermore, the company’s escalated spending on research and development, particularly in advancing solid oxide power generation, electrolysis platforms, and carbon separation solutions, holds implications for its future. The heightened financial commitment could impact short-term profitability, requiring careful management and strategic planning to mitigate potential downsides.

That being said, over the past three months, 16 insider trading sells occurred, involving 378,102 shares. Additionally, in the last 12 months, 20 insider trading sells took place, with 617,014 shares being sold. Shares of FCEL have plunged 58.5% over the past year to close the last trading session at $1.54.

Here are the financial aspects of FCEL that could influence its performance in the near term:

Weak Last Reported Financials

For the third quarter that ended July 31, 2023, FCEL’s total revenues decreased 40.8% year-over-year to $25.51 million. Its adjusted EBITDA loss widened 52.2% from the year-ago value to $31.61 million. Also, its loss from operations worsened 47.9% from the prior year’s period to $41.40 million.

In addition, net loss attributable to FCEL and loss per share came in at $24.28 million and $0.06, respectively.

Unoptimistic Analyst Estimates

The consensus revenue estimate of $126.07 million for the fiscal year ended October 2023 reflects a 3.4% year-over-year decline. Moreover, the company is expected to report a loss per share of $0.28 for the same quarter.

Stretched Valuation

In terms of forward EV/Sales, FCEL is trading at 3.93x, 119.4% higher than the industry average of 1.79x. In addition, its forward Price/Sales of 5.50x is 294.1% higher than the 1.40x industry average.

Lower-Than-Industry Profitability

The stock’s trailing-12-month gross profit margin of negative 15.03% compares to the industry average of 30.28%. In addition, its trailing-12-month EBITDA margin and trailing-12-month net income margin of 82.50% and negative 85.40% compare with the industry averages of 13.66% and 6.09%, respectively.

POWR Ratings Exhibit Bleak Prospects

FCEL’s poor outlook is apparent in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 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 an F grade for Quality, in sync with its poor profitability. In addition, the stock has an F grade for Stability, consistent with its 24-month beta of 1.85.

FCEL has ranked #88 in the 91-stock Industrial – Equipment industry. Click here to access FCEL’s Growth, Momentum, Sentiment, and Value ratings.

Bottom Line

FCEL recorded a dip in revenues, amplified gross loss, and elevated expenditures in its last quarter. In addition, the stock now trades at an elevated valuation compared to its peers, displaying low profitability and stability, along with an unfavorable earnings outlook. Thus, it could be wise to steer clear of FCEL for the time being.

How Does FuelCell Energy, Inc. (FCEL) Stack Up Against Its Peers?

While FCEL has an overall grade of F, equating to a Strong Sell rating, you may also check out these A (Strong Buy) stocks within the Industrial – Equipment industry: Global Industrial Company (GIC - Get Rating), Preformed Line Products Company (PLPC - Get Rating) and Alpha Pro Tech, Ltd. (APT - Get Rating). To explore more Industrial – Equipment stocks, click here.

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FCEL shares were trading at $1.58 per share on Monday morning, up $0.04 (+2.27%). Year-to-date, FCEL has declined -43.17%, versus a 24.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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