FuelCell Energy Inc. (NASDAQ:FCEL) has long been a company with a lot of potential that it's failed to live up to. On-site energy generation or backup generation capability just hasn't had the market opportunity management and investors have long hoped for, and now is the moment of truth for FuelCell Energy: meet its potential or other technologies will pass it by. Here's what investors should know.
Growth and income has been hard to come by
You can see in the chart below that losses have been consistent over the past five years for Fuel Cell Energy. Growth hasn't been a cure and management's cost-cutting measures and falling feedstock prices (like natural gas) haven't helped.
The problem is that new technologies like rooftop solar, energy storage, demand response, and others are starting to become economically viable solutions for commercial and industrial customers. If FuelCell Energy can't make money in an environment where competitors are weak, how can it expect to make money as they become stronger?
Dilution is a constant problem
When you don't make money, you have to constantly raise funds somehow. FuelCell Energy has repeatedly turned to public markets, selling more and more shares over the past decade.
This keeps the company afloat but dilutes current shareholders. Even if it does start to make money and the stock recovers in a few years, history shows that investors will own a smaller and smaller piece of that recovery. The sale of stock usually has a limited shelf life, too. Public equity investors will only have so much patience for providing new funds without seeing a profit. We just don't know when that patience will run out.
Not all fuel cells are created equal
One of the strange things that happened in the last few years is that fuel cell-related companies have tended to trade together in the short term, even if they don't have anything to do with one another. For example, Fuel Cell Energy stock rose more than 50% in the week following Plug Power's (NASDAQ:PLUG) deal with Wal-Mart in 2014, despite not having any big news of its own in that week.
Often, the initial reaction is just to buy all fuel cell stocks when anything good happens to any fuel cell company. That's not how the industry works, however, and Plug Power's growth certainly hasn't transferred to FuelCell Energy, as you can see below.
FuelCell Energy is more of a power company that happens to use a fuel cell to make power for buildings where its systems are installed. Plug Power, on the other hand, makes hydrogen fuel cell systems for materials handling and delivers hydrogen to customers as well. It's a completely different business than FuelCell Energy.
Not all fuel cell companies are created equal, and just because hydrogen is gaining traction in the materials-handling business doesn't mean good news for FuelCell Energy.