DFC3000 in San Diego, © FCES

FuelCell Energy’s stock went into free fall: Within a few days, the company’s shares had lost half of their value. Management didn’t even see the need to comment on the price drop for some time. On Dec.1, 2016, the Canadian business finally broke its silence and announced in a business update that it was letting go staff to adapt to new and lower projections of annual megawatt power closer to 25 than 50 MW. The move is reported to cut costs by USD 6 million each year.

Many of the projects that FuelCell Energy bid on will apparently be realized only this year or be ready for signing. Revenue was expected to total USD 108 million in 2016. A look at the financials reveals that the current stock market cap of below USD 70 million heavily underrates the business’s liquidity of USD 118 million, with USD 84 million not being tied up in any project or even being restricted. This number shows that “something can’t be right.” Additionally, FuelCell Energy has over USD 30 million available in credit facilities to finance projects.

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Could all this be related to the unnamed investor which had funneled USD 37.3 million into the business not too long ago, at a share price of around USD 5.75? The investor could be a hedge fund, which does provide “fast money,” but may have exercising options and short-selling in mind (sells short to recoup investment and makes large share purchases at low price). Seen that way, I don’t quite understand why shares fell in only one day of trading from above USD 5 to around USD 3 after it had been announced that the decision on the large Beacon Falls project would be postponed to 2017. FuelCell Energy is still in the race, so that the price drop makes little sense. And it’s not the company’s only project or bid either.

Oil shale solutions

There are, however, other good news to report about the company’s technologies. For instance, they will make it possible to use carbon capture to convert the enormous CO₂ emissions produced by oil shale processing in Canada into energy and yield. It’s a perfect example of how technology can mitigate serious risks to the environment. It will only be a matter of time before there are new orders in Canada based on the advancements made – especially considering the new Canadian government’s commitment to renewables. During the third quarter, the company was able to conclude a joint project with Pfizer. And business partner ExxonMobil is working on its own first pilot.

Conclusion: I think FuelCell Energy’s prospects are much brighter than the current share price indicates. Fuel cell technologies have matured enough, as is evident by the number of order bookings and projects. Partners such as ExxonMobil will gradually turn into large users and customers of the technology after test runs. The current market evaluation could spark the interest of organizations specializing in takeover bids, as FuelCell Energy is a financially healthy company with enough bookings to go around. Buy on bad news would be the logical conclusion and my recommendation for long-term investors.

Risk warning

Investors must understand that buying and selling shares is done at their own risk. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small and mid-cap ones, i.e., they do not represent stakes in big companies and the volatility is significantly higher. This article is not to be taken as a recommendation of what shares to buy or sell – it comes without any explicit or implicit guarantee or warranty. All information is based on publicly available sources and the assessments put forth in this article represent exclusively the author’s own opinion. This article focuses on mid-term and long-term perspectives and not short-term profit. The author may own shares in any of the companies mentioned in this article.

Author: Sven Jösting (written Dec. 2016)