FuelCell Energy (NASDAQ:FCEL) continues to move up based on rampant speculation. I wrote earlier this month about how FCEL stock spiked over 800% in the last year based on no profits.
The company is still not expected to be profitable anytime soon. This means FCEL stock remains unmoored to any kind of normal investment reality.
However, investors seem to be highly energized by the recent Congressional passage of an alternative fuels tax credit. The credit is for renewable natural gas (RNG) which will extend into 2021 the existing tax credits. In other words, this is nothing new.
The Profit Outlook for FuelCell Energy
The benefits extend to both compressed natural gas (CNG) or liquefied natural gas (LNG) applications. This will benefit FCEL clients, no doubt. But will it make FuelCell Energy profitable. Not likely.
The company has never been nor expects to be profitable. Here is how management put on page 60 of its latest 10-Q SEC filing for the quarter ending July 31:
“…We have not been profitable since our year ended October 31, 1997. We expect to continue to incur net losses and generate negative cash flows until we can produce sufficient revenues and margins to cover our costs. We may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.”
In fact, if FuelCell had not raised the $105 million in cash, they would have run out of cash. At the end of Q3, the company reported its cash flow from operations was negative $24.6 million.
Net cash used in investing activities was negative $24.3 million. In other words, in nine months through July 31, FuelCell burnt through $48.9 million, and now had just $72 million left.
One wonders, however, how long this most recent capital raise will last. Management simply doesn’t seem to have a business plan that includes profits. I couldn’t find one.
For example, FuelCell released a presentation on Sept. 10, after its Q3 earnings. There was no discussion of profitability or future profits.
In fact, the closest it came to this was a vague statement on page 12 that one of its goals was to “deliver positive adj. EBITDA” (earnings before interest, taxes, depreciation, and amortization). But that is until at least FY 2022, by Sept. 2022.
What to Do With FCEL Stock
Let’s get real about FCEL stock. At prices north of $10.69, the stock capitalization is $3.69 billion. That is simply way too high given the company’s prospects.
For example, analysts expect revenue will reach just $70.9 million this year and $87.8 million next year. That puts FCEL stock on a ridiculously high price-to-sales ratio of 52 times this year and 42 times next year’s revenue. These forecasts are based on analysts surveyed by Seeking Alpha.
Moreover, that same survey shows that there will be no profits over the next two years. For example, earnings per share (EPS) will be negative 41 cents this year and a loss of 18 cents next year.
Something does not compute here. How can such a miserable outlook for a company, despite some apparent catalysts, lead to a multi-billion dollar market cap? It can’t. That is my conclusion.
Look for FCEL stock to come down off its recent spike history as the market wakes up and realizes that it won’t make money. At least not anytime soon. As a result, I would look for ways to sell this stock before it’s too late.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.