FuelCell Stock Down 18% in January – Time to Buy FCEL Stock?

The price of FuelCell stock has declined more than 18% so far in January as the market has adopted a risk-off attitude that has severely affected the valuation of equity instruments amid an expected shift in macro conditions.

The yield of US 10-year Treasury Notes has reached record post-pandemic levels in the past couple of weeks as it surged near the 1.9% mark amid concerns about upcoming interest rate hikes and persistent inflationary pressures.

For companies like FuelCell, whose business is not yet financially feasible as it generates negative operating results, higher risk premiums for equities as a whole can have a dramatic effect on valuation multiples.

On 12 January, FuelCell announced that a project located in Long Island, New York has commenced commercial operations, currently producing a total of 7.4 megawatts to serve approximately 7,500 homes. The total investment made by the company to build the facility was $12.4 million.

Despite this positive development, the market’s overall sentiment toward the stock has been quite negative as reflected by the decline that followed the announcement.

What could be expected from this green energy stock in this current environment? In this article, I’ll be assessing the price action and fundamentals of FCEL stock to outline plausible scenarios for the future.

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FuelCell Stock – Technical Analysis

In my previous article about FuelCell, I emphasized the importance of the $5.5 support area as a break below this threshold could lead to a severe decline in the stock price in the short term.

That is exactly what happened in January and even though the target I set forth back then for FCEL has not been reached – $2 per share – the stock remains on a downtrend and momentum indicators are not yet signaling that a reversal could take place soon.

FCEL stock is currently trading 44% below its 200-day simple moving average and 86% below its 52-week high of $29.4 per share.

Meanwhile, the Relative Strength Index (RSI) is standing at 38 (bearish) while the MACD has flat-lined and remains in negative territory. These two readings indicate that momentum for the stock continues to be negative.

All things considered, the outlook for FuelCell stock is bearish and the short-term target I outlined back in December of $2 per share continues to be plausible. This results in a total downside risk of 52% based on yesterday’s closing price.

FuelCell Stock – Fundamental Analysis

Trading multiples for FuelCell have suffered a dramatic decline ever since the stock hit its 52-week peak back in February 2021 when it became a meme stock.

The forward price-to-sales ratio has declined from around 95x to 10x since then as the influence of retail traders on the price action of this and other issues has progressively faded.

FuelCell’s revenue growth has been disappointing in the past five years or so but the market is expecting that the firm will manage to push its top-line results significantly higher in the next two years. This might be the reason why trading multiples remain elevated despite the market’s overall weakness.

For 2022, analysts are expecting to see FuelCell’s revenues jumping to $140 million or so resulting in a 100% year-on-year jump. However, the company is still expected to keep losing money as operations need to be scaled to produce earnings on the back of economies of scale.

In the past 12 months, FuelCell produced negative free cash flows of $140 million. Meanwhile, by the end of the past quarter, the company had $432 million in cash and equivalents and long-term debt of only $10 million.

FuelCell will need to keep investing hundreds of millions to produce the kind of growth that the market is expecting and its current reserves may not be sufficient to achieve that goal. With this in mind, the management might be forced to raise more capital in the next one to two years.

If macro conditions remain less favorable compared to how they were during the pandemic, chances are that share offerings will be priced near or below current levels to entice investors.

Therefore, dilution risks seem elevated at the moment and the odds that the price could return to the levels seen in the past three to six months are rather low in this particular scenario.

With this in mind, FuelCell stock can hardly be rated a buy regardless of the contraction that its trading multiples have experienced lately. Therefore, the business remains, from a fundamental perspective, an unattractive investment.

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