Green power may replace dirty coal-burning and oil-drinking power plants in due time, and early investors will ultimately get rich. But it's still too early in the game to make any money in this investment market. Exhibit A for this thesis comes from alternative power expert FuelCell Energy
As the name implies, the company generates large-scale electric power from hydrogen-storing fuel cells, a technology you've heard plenty about in the context of powering the next generation of cars. The concept is great: Take organic waste materials like chicken droppings and household trash, extract hydrogen gas from said detritus, and use it to power anything from factories to small towns. It works, it's already in production in places like South Korea and California, and FuelCell should make a lot of people very rich ... eventually.
But you might still want to hold off on buying shares in this company for the moment. You see, FuelCell is nowhere near profitable yet, and it will probably take another couple of years before the company builds enough economies of scale to swim out of the sea of red ink in which it's dog-paddling today. Until that happens, the swooning stock chart will continue to point downward.
In last night's third-quarter report, FuelCell showed sales dropping 17% year over year to $18.9 million. The backlog of not-yet-delivered orders stands more than four times the quarter's billed revenue, which is very impressive, but still reflects a lower backlog than the company is used to. Manufacturing efficiencies are starting to make a difference, so net losses shrank from $0.21 per share to $0.15 per share.
The press release also pointed out that the product-to-cost ratio is lowering over time, getting closer and closer to the magical 1.0 mark. In other words, it still costs more to make these fuel cells than the company collects from selling them.
All the trends are moving in the right direction here, but FuelCell has a long history of burning cash at a tremendous pace, and nothing in this report points to an end to that unfortunate condition. Whenever the company runs out of cash, FuelCell prefers to sell more stock instead of borrowing money, which leads to a lot of dilution. At the current pace, you should expect another secondary offering in the next couple of quarters.
Until FuelCell gets close to profitability and breakeven cash flows, you should stay on the sidelines. The same goes for direct rivals including Ballard Power Systems
Solar power looks a bit closer to commercial success, if you insist on investing in clean energy right now; I'd suggest taking a closer look at five-star CAPS stock JA Solar Holdings
Can you think of a better clean energy play for today's market? Share your wisdom in the comments below.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. PowerShares WilderHill Clean Energy is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.