Fuel Tech Inc. (FTEK) in Warrenville, Ill., creates and commercializes innovative patented solutions for air pollution management, process optimization, water treatment, and advanced engineering services. The company is a market leader in nitrogen oxide (NOx) reduction and particulate control technology, with solutions deployed in more than 1,200 utility, industrial, and municipal units worldwide.

The company’s shares have rallied 6.3% in price over the past three months, fueled by its expanding global footprint and heightened demand for air pollution reduction and control solutions from utility and industrial customers worldwide.

However, given FTEK’s poor profitability and mixed financials, its near-term prospects look uncertain.

Here’s what could influence FTEK’s performance in the upcoming months:

Robust Demand

In July, FTEK received various air pollution control (APC) contracts from clients in Korea, North America, and Europe. These contracts are worth some $4.5 million. In addition, the company completed two onsite DGITM Dissolved Gas Infusion water treatment technology demonstrations in the United States. This demonstrates FTEK’s growing footprint in the pollution control industry.

Mixed Financials

For the second quarter, ended June 30, 2021, FEK’s revenue increased 18.6% year-over-year to $5.22 million. Its cash and cash equivalents grew 240.2% from its year-ago value to $36.19 million. Its net cash from operating activities came in at $229,000 over this period.

However, its operating loss came in at $689,000. The company reported a $778,000 net loss, while its loss per share amounted to $0.03 during this period. In addition, its adjusted EBITDA came in at negative $569,000.

Poor Profitability

FTEK’s 1.8% trailing-12-months net income margin is 68.6% lower than the 5.9% industry average. Also, its ROC and EBIT margin are negative 6.2% and 14.1%, respectively. And its $936,000 trailing-12-months cash from operations is 99.6% lower than the $224.97 million industry average.

Impressive Growth Prospects

A $7.53 million consensus revenue estimate for the next quarter (ending December 2021) indicates a 21.1% improvement year-over-year. Analysts expect FTEK’s EPS to rise 57.1% in the next quarter.

The Street expects DHR’s revenues and EPS to rise 8.1% and 58.8%, respectively, year-over-year in its fiscal year 2021. Also, the company’s revenue is expected to rise 156.9% year-over-year to $62.6 million in fiscal 2022. In addition, FTEK’s EPS is expected to rise at a 12.1% CAGR over the next five years. The company also has an impressive earnings surprise history; it topped the Street’s EPS estimates in three of the trailing four quarters.

POWR Ratings Reflect Uncertainty

FTEK has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated 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. FTEK has an F grade for Stability. The stock’s 5.73 beta is consistent with its Stability grade.

Also, the stock has a D grade for Growth. The company’s mixed financials in the last reported quarter justify the Growth grade.

Of the 89 stocks in the B-rated Industrial – Services industry, FTEK is ranked #65.

Beyond what I’ve stated above, one can view FTEK ratings for Value, Sentiment, Momentum, and Quality here.

Bottom Line

FTEK is at the forefront of the air pollution control solutions market. With state-of-the-art products and services and an international market presence, FTEK is poised to become a market leader. However, the company’s operational inefficiencies are a cause for concern. Despite growing demand, FTEK reported negative profit margins. Thus, we think investors should wait until the company’s profit margins improve before investing in the stock.

Click here to check out our Industrial Sector Report for 2021

How Does Fuel Tech Inc. (FTEK) Stack Up Against its Peers?

While FTEK has an overall C rating, one might want to consider looking at its industry peers Heritage Crystal Clean Inc. (HCCI), EMCOR Group Inc. (EME), and Ryder System Inc. (R), which each have overall A (Strong Buy) ratings.

FTEK shares rose $0.01 (+0.47%) in premarket trading Tuesday. Year-to-date, FTEK has declined -43.81%, versus a 23.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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