FuelCell Stock Up 23% in September – Time to Buy FCEL Stock?

The price of FuelCell stock has gone up nearly 23% so far in September following the release of the firm’s third-quarter earnings report as revenues for the period landed above the market’s expectations although losses accelerated.

For the three months ended on 31 July, the California-based manufacturer of biogas-powered fuel cells reported revenues of $26.82 million resulting in a 43% jump compared to the same period a year ago while the figure exceeded Wall Street’s consensus by more than 30% as per data compiled by Capital IQ.

Meanwhile, diluted net losses per share landed at $0.04 or 43% higher than the figure reported in the third quarter of 2020 while they also came in 1 cent higher than analysts’ forecasts.

Moreover, FCEL stock advanced almost 10% yesterday at $7.65 following the signing of the 155 Bill in California. According to a statement from FuelCell, this legislation “allows customers that install fuel cell systems up to five megawatts onsite to be relieved from paying standby and departing load charges imposed by California’s investor-owned utilities”.

Can this positive development support the beginning of an uptrend for FCEL stock? In the following article, I’ll take a closer look at the price action and fundamentals of the company to possibly answer that question.

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FuelCell Stock – Technical Analysis

The positive performance of FCEL stock during this month is quite promising as the price action is possibly reversing a long-dated downtrend that started back in February once the short-squeezing frenzy started to fade.

Shares of the California-based company jumped almost 15% on the day that this latest quarterly earnings report was released and that led to a break of the descending triangle formation highlighted in the chart above on the back of elevated trading volumes.

More than 214 million shares exchanged hands on that single day – a figure that exceeded the daily average by nearly 10 times.

Since that break, the stock has continued to climb steadily and the past four sessions have “sealed the deal” although an upcoming horizontal resistance at $8.3 per share still needs to be broken to further confirm this bull run.

Momentum indicators are quite positive at the moment for FCEL stock as the Relative Strength Index (RSI) has just climbed to its highest levels since June while the MACD has just crossed above the signal line accompanied by steadily rising histogram readings.

Short float for FuelCell is quite high as it is currently standing at 17.1% according to data from Finviz and that could accelerate the uptrend if short-sellers find themselves struggling to cover their positions to limit their losses.

Moving forward, from a technical standpoint, the outlook for FCEL stock is bullish as long as the price breaks above the $8.3 level. Meanwhile, even if the price rejects that threshold, a tag of that level would result in an 11% potential short-term gain for traders.

FuelCell Stock – Fundamental Analysis

FuelCell revenues had been declining steadily from 2016 to 2019 while the downtrend was reversed last year as revenues jumped 16.7% at $70.9 million. The Generation and Advanced Technologies segments led the firm’s top-line results higher during this period.

Gross profits generated by FuelCell have been negative in three out of the past five years while the firm’s negative GAAP operating income has ranged from $37 million to $46 million during that same period.

Meanwhile, interest expenses have kept climbing in the past two years and this has resulted in increasingly higher GAAP net losses for the firm. Last year, the company reported $89 million in negative bottom-line results.

By the end of the last quarter, FuelCell had $72.4 million in long-term financial obligations including $48.63 million coming from sale-leaseback agreements. Meanwhile, total assets for the firm ended that same period at $879.6 million including $468.57 million in unrestricted cash and equivalents.

This latest bill from the California government would reduce the cost of installing a solution provided by the company by individuals and businesses within the state. However, it seems too early to assess the material impact that it will have on the firm’s financial performance.

At its current market capitalization of $2.8 billion, FuelCell is being valued at more than 4 times its tangible book value and at more than 36 times its forecasted sales for the 2021 fiscal year. Even though the firm’s intangible assets (patents, trademarks, technology) might carry some value, the valuation seems quite stretched as FuelCell has not yet proven that it can scale up its business to a point that it starts producing positive top-line profitability.

With that in mind, even if the current technical setup is bullish, the company remains a risky bet unless its financial performance improves significantly in the future.

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