FuelCell Energy (NASDAQ: FCEL ) along with other industrial stocks recently sold off after news that the US Senate would not sponsor a package that would introduce new spending to tackle climate change. Since then, shares are currently up 2.34%, leading some investors to wonder if the company will be able to break new ground this year and climb to new heights. This article will examine the forces working in the company’s favor, as well as some warning signs.
Despite the short-term sell-off, FCEL is performing well in terms of revenue on a YoY and FWD basis. The company currently has a year-over-year revenue growth of 37.76%, while the sector is struggling at 17.74%. Its FWD revenue projections, however, are less bullish at 28.86% compared to 10.62%.
In addition to growing the company’s revenue, FCEL’s managers 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 industry average. The company’s CAPEX growth is 98.42% while the sector is 29.19%.
Although FCEL has good growth prospects, several analysts over the past three months have revised their expectations for this stock. The company has received 1 EPS downgrade and 7 revenue downgrades. It currently has 11 analysts covering it in the last 90 days with a consensus hold rating, with 9 analysts giving this rating and 1 rating sell and 1 rating strong sell.
Struggling with profitability and margins
FCEL is reportedly struggling to make its business profitable, which can be partially explained by its heavy investment in CAPEX to earn more profits. The company’s TTM gross profit margin is -14.02% while the sector has a positive margin of 29.59%. After accounting for expenses, its EBITDA margin is currently much worse compared to the industry median at -90.67%, and the industry has a margin of 12.98%.
The company’s poor performance on this front has seen it lose much of its value over the past year. It is currently down -39.35%, which is more than the sector’s loss of -14.18%. In the long term, FCEL is also struggling to keep pace or make gains in the broader market. Over the past five years, the company’s return to shareholders decreased by 80.29%, while the S&P 500 returned 68.08%.
FCEL’s valuation is more expensive than some of its industrial peers on a price/sales basis. FCEL’s P/S ratio is 15.26 whereas WallBox (NYSE: WBX ) stands at 12.92 and Stem (NYSE: STEM ) has a ratio of 5.15. Some of FCEL’s ratios are relatively better than others in the sector, such as its Price to Book which is 2.10 to the sector’s 2.56.
A big part of the reason the company’s valuation ratios are relatively higher than its competitors is that its sales per share have declined considerably since 2014, when it previously stood at $146.93 by action That number has today dropped to $0.25.