After a sharp decline, with high volumes being traded at prices as low as USD 0.40, the tide suddenly turned for FuelCell Energy (Nasdaq: FCEL). While trade volume increased even more, to 17.5 million shares, the price shot to USD 0.90 within a few days. Then, the tide turned again, and the shares fell to a new low. It’s almost as if the stock is part of a high-stakes gambling game. Who is in the know?
FuelCell Energy has offered no explanation for the wild swings. So, what is happening? The company has issued different series of preferred stock, which can be turned into common stock. The caveat: There is no conversion price, just a ratio. This might suggest that the large trading volume of between one and over five million shares is part of strategy by those owning the series to short-sell stock post-conversion and benefit from a falling price to buy a greater number of shares for less.
If that is the case, though I can’t be sure it is, shareholders who have benefitted from the falling prices could, at some point, switch sides and go long. Clearly, somebody must have snatched up the stock. Considering positive news all around, such as bookings totaling USD 2 billion, it is the only reason I can think of to explain the drastic slump. It has been reported that the series C shares are owned by just one investor, which agreed with FuelCell Energy to receive more in light of what’s happened. Is that game also being played regarding Series D preferred stock?
Still, I’m hopeful the price will recover quickly, as soon as partners such as Exxon place orders with FuelCell for their carbon capture system. Else, the oil corporation’s media campaign, which specifically named the fuel cell manufacturer, would be a clear attempt at greenwashing. And last but not least, whoever is behind the recent turmoil might also be aiming for a large parcel of shares that could be sold, at a big profit, to a strategic investor, for example, an industrial equipment manufacturer. We’ll see.
Revenue in the first quarter, ended January 31, 2019, fell from around USD 38 million to USD 18 million year on year. These kinds of ups and downs each quarter are normal for businesses focusing on large projects. Loss was at USD 0.33 per share, including USD 0.15 for non-cash items. Bookings totaled USD 1.3 billion and could rise by another USD 0.6 billion, provided the company is successful in turning its current bids into contract awards. Cash and cash reserves amounted to USD 68 million, and loan facilities are still available, too.
Generate Capital provides cash infusion
Big, positive news came from cleantech fund Generate Capital, which signed a deal with FuelCell Energy about a USD 100 million construction loan facility. The total could even increase to USD 300 million. Generate Capital is thought to have an impeccable reputation when it comes to funding projects. Obviously, the collateral is the project itself. Nevertheless, the facility provides the manufacturer with enough money to implement ideas that it couldn’t have otherwise – a win-win for everyone.
Of course, these kinds of ventures are not for conservative investors but shareholders believing in the medium-term and long-term prospects of clean technology. Among those who have so far analyzed the company and its stock, five recommend buying shares while expecting the price to be USD 2 and USD 3 in the long run. Only one sees the stock ending up at USD 0.55.
While the price was down, US-based investment management corporation BlackRock bought nearly 6 million of the company’s shares. I agree with the assessments made by BlackRock and the five analysts mentioned above. Plus, FuelCell Energy’s latest book value per share was USD 0.86. Even if, in the meantime, the total number of shares has increased considerably because multiple shareholders converted preferred into common stock, that value squares with current market capitalization and can be used to estimate net worth. I have trust in FuelCell Energy’s technology, business model and opportunities for growth.
Share trading can result in a total loss of your investment. 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 may experience high stock volatility. 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 content of this article reflects the author’s opinion only. This article focuses on mid-term and long-term prospects and not short-term profit. The author may own shares in any of the companies mentioned in it.
Written by Sven Jösting