FuelCell Finally Getting Fired Up?

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FuelCell Energy (Nasdaq: FCEL) is an alternative-energy name that I've entirely avoided in my Foolish coverage of the space. Call me old-fashioned, but I like companies that make money.

FuelCell, which has been public since 1992, reminds me a bit of Evergreen Solar (Nasdaq: ESLR): Both came public way too early. When it comes to aspiring Rule Breaker companies like these, I prefer that they go through their pre-commercial growing pains in private hands. Even First Solar (Nasdaq: FSLR) had a rocky start, back when it was known as Solar Cells Inc.

Government funding allowed FuelCell to report modest profits in its early years, but the company hasn't turned a profit since 1997. Since transitioning from a contract R&D shop to a commercial manufacturer, FuelCell hasn't managed to produce a fuel cell unit at a positive gross margin. Although the company's last fiscal year saw total revenue more than double, FuelCell still reported its largest loss to date.

As noted in the company's annual report, however, positive margins may finally be in the offing with the firm's newest megawatt-scale offerings. FuelCell expects to roll these out in its fourth fiscal quarter, which ends in October.

For now, the company remains in the red, but investors nonetheless loved FuelCell's lower losses compared to last year. The company reported a loss of about $20 million, versus $26 million in the prior year, and the stock leaped in Tuesday's trading.

With another large sale to the power subsidiary of Korean steel magnate POSCO (NYSE: PKX), FuelCell finds itself even more closely entwined with the firm that provided the bulk of its revenue last year. POSCO Power agreed to make a small investment in FuelCell shares for good measure. While revenue concentration carries risks, I think this tight ongoing relationship with POSCO is unquestionably a net positive for the company.

Of course, big contracts like these don't add up to much when your margins are negative. Until I see compelling economics offered by FuelCell's manufacturing operations, I'm unlikely to take much of a shine to these shares.