FuelCell Stock Down 12% Today – Time to Buy FCEL Stock?

The price of FuelCell stock is declining 12% today in pre-market stock trading action following the release of the firm’s earnings report covering the fourth quarter of its 2021 fiscal year as revenues were lower than expected while net losses widened.

For the three months ended on 31 October, FuelCell reported total revenues of $13.9 million resulting in an 18% drop compared to the same quarter a year ago. The consensus estimate for this fourth quarter stood at $21.6 million.

Most of this deceleration in the company’s top-line performance was caused by a drop in its service agreement and licensing revenues as they landed at minus $0.1 million compared to a $5.4 million figure reported in the fourth quarter of the 2020 fiscal year.

“The decrease in revenue is primarily due to the fact that there were no module exchanges during the fourth quarter of fiscal 2021.”, the company stated.

The decline was partially offset by a 31% and 14% increase in the generation and advanced technologies segments respectively.

Gross losses stood relatively unchanged at $8.37 million while losses from operations accelerated to $22.55 million compared to $17.12 million reported a year ago. As a result, the company reported a net loss of $24.98 million. On a fully diluted per share basis, that figure translated into a $0.07 loss. Market participants had forecasted milder GAAP losses of $0.03 per share for the period.

These disappointing quarterly results are probably the reason why FuelCell stock is dropping today. So far this month, the stock has shed nearly 33% of its value.

What can be expected from this renewable energy stock following the release of this earnings report? 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

Back in November when I last wrote about FuelCell, I emphasized that the rally that the stock was experiencing back then following a break of a falling wedge pattern had to lead to a sustained push above the 200-day simple moving average for the stock to keep moving higher in the next few weeks.

This did not happen as FuelCell stock traded above this threshold for only a few days to then decline swiftly to its current level.

This morning’s pre-market downtick is pushing the price below a crucial horizontal support found at the $5.5 level. Such a break could lead to an acceleration of the downtrend that started in November.

Momentum readings are quite depressed at the moment with the Relative Strength Index (RSI) standing at 31 and near oversold levels while the MACD remains on a downtrend and submerged in negative territory.

Even though negative histogram readings have been steadily decreasing, a break below this support could indicate that negative momentum is picking up steam once again.

Overall, the outlook for FCEL stock is bearish if a break below the $5.5 mark occurs today. This could lead to a sizable correction toward the $2 level resulting in a huge downside risk for FCEL stock.

FuelCell Stock – Fundamental Analysis

The fact that FuelCell was not able to produce revenues from the sale of services and licenses during the fourth quarter of this year is particularly worrisome and points to an underlying weakness in the business model.

Last year, the company generated revenues of $25.1 million from this segment and this quarter’s fallout has ended up hurting the firm’s annualized top-line performance as the company is reporting another year-on-year drop.

FuelCell had cash and equivalents of $432.2 million by the end of October and a small long-term debt of $78.64 million – less than half of what the company had a year ago. Meanwhile, the company burned around $140 million in cash this year.

Moving forward, FuelCell may have to raise more capital at some point in the future to keep expanding its operations. For 2022, the company expects to spend around $50 million in capital expenditures and another $60 million in project asset expenditures. That would result in an acceleration of its cash burn.

With this in mind, the risk of a dilutive share sale next year is elevated at the moment. This makes the current $2.2 billion valuation look quite stretched as the company’s business model remains unproven and market conditions may not be favorable as they were this year for the business to keep raising capital without hurting existing shareholders or increasing the firm’s leverage.

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