FuelCell Energy (NASDAQ: FCEL) along with other stocks in the industrial sector was sold off recently following the news that the US senate would not sponsor a package that would introduce new spending to tackle climate change. Since then, the stock is currently up 2.34%, so some investors have wondered if the company is able to make new ground this year and chart to newer heights. This article will examine the forces working in the company’s favor, as well as go over some warning signs.
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Despite the short-term sell-off, FCEL is performing strongly in terms of revenue on a YoY and FWD basis. The company currently has YoY revenue growth of 37.76%, while the sector struggles at 17.74%. Its FWD revenue projections, though, are less optimistic, as it’s 28.86% compared to 10.62%.
In addition to growing the company’s revenues, executives at FCEL have also made large strategic investments that are reflected in the company’s working capital and CAPEX growth. These figures are also growing faster than the industry median. The company’s CAPEX growth stands at 98.42% while the sector is 29.19%.
Although FCEL has strong growth prospects, a number of analysts over the last three months have revised their expectations for this stock. The company has received 1 EPS down revision and 7 revenue down revisions. It currently has 11 analysts covering it over the last 90 days, with a consensus Hold rating, with 9 analysts giving this rating and 1 sell rating, and 1 strong sell rating.
Struggling with Profitability and Margins
FCEL is reportedly having a tough time making its business profitable, which can partially be explained by its large investment in CAPEX for further gains down the line. The company’s gross profit margin TTM is -14.02% while the sector has a positive margin of 29.59%. After expenses are factored out, its EBITDA margin is currently doing considerably worse when compared to the sector median as this is -90.67%, and the sector has a margin of 12.98%.
The company’s poor performance on this front has led it to shed a lot of its value over the last year. It’s currently down -39.35%, which is more than the sector’s loss of -14.18%. Over the long term, FCEL is also struggling to keep pace with or make gains on the broader market. Over the last five years, the company’s return to shareholders contracted -by 80.29% while the S&P 500 delivered a return of 68.08%.
FCEL’s valuation is more expensive than some of its peer companies in the industrials sector on a Price / Sales basis. FCEL’s P/S ratio is 15.26, while WallBox (NYSE: WBX) stands at 12.92, and Stem (NYSE: STEM) has a ratio of 5.15. Some ratios of FCEL are relatively better than others in the sector such as its Price / Book which is 2.10 to the sector’s 2.56.
A large part of the reason why the company’s valuation ratios are relatively higher than its competitors is that its sales per share have declined considerably from 2014 onwards when it once stood at $146.93 per share. That figure today has shrunk to $0.25.