What happened

Shares of FuelCell Energy (NASDAQ:FCEL) are on fire today, popping 34.2% as of 10:25 a.m. EDT on heavy volume after the company's third-quarter numbers beat analysts' estimates. The stock has cooled off a bit from its day's high point but was still up 23.7% as of 11:30 a.m. EDT on Tuesday, commanding a market capitalization of $2.2 billion. 

So what

Here are some key numbers from the earnings report for the quarter, all changes year over year:

  • Revenue up 43% to $26.8 million.
  • Gross profit up 135% to $1.1 million.
  • Net loss down 21% to $12.8 million, or $0.04 per share from $0.07 a share a year ago.
  • Backlog down 2% to $1.3 billion.

Consensus estimates called for revenue of $20.7 million and a net loss of $0.05 per share, so it was a pretty big beat, especially on the top line. Today's sales and earnings beat is even more pronounced given that FuelCell Energy had missed estimates for several quarters in a row.

A person looking shockingly at a laptop screen.

Image source: Getty Images.

Investors in fuel cell stocks have been wary of FuelCell Energy's struggles to grow revenue, unlike its peers, which is one big reason the market is cheering the company's solid third-quarter sales numbers today.

FuelCell Energy also ended the quarter with cash and cash equivalents worth $494 million, compared with $192.1 million as of Oct. 31, 2020.

Now what

There are some things to understand here.

First, FuelCell Energy doesn't have any product backlog. It derives revenue from services, and its current backlog value of $1.3 billion could take anything between 1 to 20 years to convert into revenue. More noteworthy is that flat or declining backlog means the company isn't winning any new contracts. In the third quarter, much of its revenue came from services like module exchanges provided to customers under agreements.

Second, FuelCell's war chest might be growing, but all of that cash is coming from share sales, which means existing shareholders are only watching their stake being diluted. That's one yellow flag to keep in mind for investors getting pumped up after the stock's dizzying rally today.

Most importantly, one quarter doesn't change a company's fundamentals, so do your research on FuelCell Energy stock well before joining the market frenzy. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.