Shares of the fuel cell power plant operator FuelCell Energy, Inc. (FCEL) tanked this month after the company delivered a lackluster fourth quarter earnings report. Although the stock has gained 604% over the past year driven by  increasing optimism about the clean energy industry and  favorable energy policy reform, the stock has lost 40.7% over the past month.

Another possible reason for this retreat is the recent announcement by Norway-based energy-related holding company TECO 2030 that it plans to build Norway’s first giga hydrogen fuel cell production factory. The new large-scale facility could pose strong competition to American fuel cell companies.

In addition, FCEL’s sky-high valuation is a concern. Thus, we believe the stock lacks the potential to rebound in the near term.

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

Potential Competition

Last month, Norwegian company TECO 2030 announced plans to establish Norway’s first large-scale production of fuel cells, optimized to be the heart of hydrogen-powered ships and other heavy-duty installations. The project will be completed in  collaboration with AVL, an Austrian engineering company that has more than 150 patents in the fuel cell industry. This suggests that the company need not  license technology from  U.S. fuel cell providers like Plug, Inc. (PLUG) and FCEL.

Since the company plans to start its fuel cell production in 2022, the new facility could be  a stiff competitor to the FCEL’s existing business.

Unimpressive Fourth-Quarter Results

Although FCEL’s revenue has increased 54% year-over-year to $17.0 million in the fourth quarter, ended October 31, 2020, the company reported a loss of $8.05 million. FCEL generated a net loss of $18.86 million and an operating loss of $17.12 million. Its loss per share came was $0.08 for this period. Also, it reported an adjusted EBITDA loss of $8.55 million over this period.

Stretched Valuation

In terms of forward ev/sales, FCEL is currently trading at 64.49x, which is significantly higher than the industry average 1.99x. Its trailing-12-month price/sales of 49.36x is 2900.1% higher than the industry average 1.65x. Also, its forward price-to-book of 19.70x is 558.1% higher than the industry average 2.99x.

Consensus Price Target Indicates Potential Downside

Currently trading at $14.08, Wall Street analysts expect the stock to hit  $13.60 in the near term, which indicates a potential decline of 3.4%. Of the five Wall Street analysts that rated the stock, only one rated it a Buy.

POWR Ratings Indicate Poor Prospects

FCEL has an overall rating of F, which translates to Strong Sell in our POWR Ratings 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 different categories. FCEL has a Value Grade of F. This is in sync with the stock’s stretched valuation.

FCEL also has an F grade for Quality, which is consistent with its weak fundamentals and lower profitability.

In terms of Stability Grade, FCEL has an F, indicating that  the stock is much more volatile than its industry peers.

The stock is currently ranked #85 of 90 stocks in the B-rated Industrial – Equipment group. In addition to the grades I’ve highlighted, you can check out FCEL’s POWR Ratings for Momentum, Sentiment and Growth here.

If you’re looking for better stocks in the Industrial – Equipment group, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

We think that FCEL’s recent price dip makes the stock look less compelling. Investors’ concerns surrounding  potential stiff competition and FCEL’s unimpressive financials, along with its sky-high valuation, could result in the shares declining  further in the upcoming months.

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FCEL shares were trading at $11.99 per share on Friday morning, down $2.09 (-14.84%). Year-to-date, FCEL has gained 7.34%, versus a 0.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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