FuelCell Energy (FCEL -5.63%) stock is 60% off its high price this year. Interestingly, the company's revenue, which was on a downward trend for six years, rose for the year 2020. 

Despite the recent fall, FuelCell Energy stock is up 568% in a year. Fuel cell stocks have seen some correction recently after their astronomical rise in 2020 and early this year. Let's take a look at FuelCell Energy's performance and prospects to see if it's a buy right now.

Operational performance

FuelCell Energy offers distributed power generation solutions through long-term power purchase and service agreements. The company uses carbonate fuel cell technology, which allows use of multiple fuels including natural gas and biogas. The fuel cell generates electricity via an electrochemical process and does not involve burning of fuel. That's why it produces less carbon and other emissions. Unlike PEM (proton-exchange membrane) fuel cells, carbonate fuel cells do not require expensive catalyst for the electrochemical process.

Hydrogen energy storage, solar panels, and wind turbines with sky in background.

Image source: Getty Images.

FuelCell Energy is also working at commercializing solid oxide fuel cell technology. It also aims to commercialize distributed hydrogen production, as well as carbon capture and separation for reducing emissions from fossil fuel-based generation.

FuelCell Energy has shifted from directly selling fuel cell power plants to selling just the generated power through power purchase agreements (PPAs). The company's revenue has been on a downward trend due to this shift, as PPAs generate less upfront revenue. But it's likely a better strategy in the long run, as it allows recurring revenue generation over several years. FuelCell has completed this shift and generated no revenue from direct product sales in 2020. 

FCEL Revenue (Annual) Chart

FCEL Revenue (Annual) data by YCharts

Increased generation revenue under PPAs, and a new research agreement on fuel cell technology and carbon capture with a subsidiary of ExxonMobil, contributed to the rise in FuelCell's 2020 revenue. However, as the above graph shows, FuelCell Energy has been incurring losses for years.

The company aims to deliver positive adjusted EBITDA by 2022. However, it doesn't seem to have any concrete plan to achieve bottom-line profits. 

Another concern is that FuelCell's projects backlog, as of Jan. 31, fell 7% compared to last year. Completion of projects, with no new additions, contributed to the fall in the backlog. This could limit the company's revenue growth in the near term.

FuelCell Energy faces significant risks

FuelCell Energy faces numerous risks. In 2020, the company generated 67% of its revenue from just three customers. So, these customers exercise substantial buying power. Furthermore, if any one of these customers backs out, it could materially affect FuelCell Energy's financial performance.

With negative cash flows, FuelCell Energy is dependent on debt and equity raises to fund its growth. Moreover, carbonate and solid oxide fuel cells aren't suitable for mobility applications. So, FuelCell Energy's prospects in the emerging fuel cell-powered vehicles segment is limited. In the absence of new avenues, the company's ability to become profitable looks further constrained.


FuelCell Energy stock is currently trading at a price-to-sales ratio of 40. In the absence of profits and lower sales growth compared to peers, that looks pretty high. Though the stock's recent fall has improved its valuation compared to the start of the year, it still looks too disconnected from the company's performance and growth prospects.

An absence of profits for over two decades raises concerns over the financial viability of the company's products. Customers sure have other cheaper options and would probably not like to pay extra for the clean technology. Thus, FuelCell Energy's margins would be likely low, even if they become positive. That makes the high valuation more unjustified. There surely are better opportunities in the renewable energy space right now.