FuelCell Energy (NASDAQ: FCEL) along with other stocks in the industrial sector were recently sold after 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 can break new ground this year and soar to newer heights. This article will examine the forces that work in the company’s favor, as well as discuss some warning signs.
Despite the short-term sell-off, FCEL is performing strongly in terms of year-on-year and year-over-year revenues. The company currently has an annualized revenue growth of 37.76%, while the industry struggles at 17.74%. However, the FWD revenue projections are less optimistic as it is 28.86% compared to 10.62%.
In addition to growing the company’s revenue, executives at FCEL have also made major strategic investments that are reflected in the company’s working capital and CAPEX growth. These numbers are also growing faster than the sector median. The company’s CAPEX growth stands at 98.42% while the sector stands at 29.19%.
While FCEL has strong growth prospects, a number of analysts have revised their expectations for this stock in the past three months. The company has received 1 downward revision in earnings per share and 7 downward revisions to revenue. It currently has 11 analysts covering it over the past 90 days, with a consensus Hold rating, with 9 analysts giving this rating and 1 sales rating, and 1 strong selling rating.
Struggling with profitability and margins
FCEL is reportedly struggling to make its business profitable, which can be partly explained by its large investment in CAPEX for further profits. The company’s TTM gross profit margin is -14.02%, while the industry has a positive margin of 29.59%. Excluding costs, the EBITDA margin is currently underperforming significantly compared to the industry median as it is -90.67%, and the industry has a margin of 12.98%.
The company’s poor performance in this area has caused it to lose much of its value over the past year. It is currently down -39.35%, which is more than the sector loss of -14.18%. In the long run, FCEL also struggles to keep up with or make a profit in the broader market. Over the past five years, the company’s returns to shareholders shrank 80.29%, while the S&P 500 returned 68.08%.
FCEL’s valuation is more expensive than some of its peers in the industrial sector on a price/sales basis. FCEL’s P/S ratio is 15.26, while WallBox (NYSE:WBX) stands at 12.92, and Tribe (NYSE: VOICE) has a ratio of 5.15. Some of FCEL’s ratios are comparatively better than others in the industry such as its price to book value which is 2.10 versus the industry’s 2.56.
Much of the reason the company’s valuation ratios are relatively higher than its competitors is that its revenue per share has fallen significantly from 2014, when it once stood at $146.93 per share. That figure has dwindled to $0.25 today.