Amid the chaos of the current market, there have been plenty of buying opportunities among quality stocks. However, quality is key to taking advantage of the market’s ups and downs. Like many of its peers, FuelCell Energy (NASDAQ:FCEL) has seen its share price lose 22% over the past week — but even that monumental drop isn’t enough to make FuelCell stock a buy.
The Trouble With FuelCell Stock
To understand why FuelCell isn’t a good play, it’s important to understand exactly what sets this renewable energy stock apart from its peers. The firm uses natural gas and biogas to produce electricity and heat — but its real value comes from its ability to do so without using precious metals.
As InvestorPlace’s Josh Enomoto pointed out, that sets FuelCell head and shoulders above its competition. One of the drawbacks for hydrogen fuel cells is that expensive metals like platinum are required. But Enomoto points out that even if FuelCell’s platinum replacement is feasible (which he is skeptical about), hydrogen isn’t an efficient clean-energy source. That’s because although it would help the world transition away from fossil fuels, the fact that the process requires energy to make energy is a drawback.
Indeed, there are other renewables out there that make more sense from an economic standpoint — namely solar power.
Can FuelCell Keep Up?
There’s no doubt that the clean energy space is going to see growth in the years ahead — especially if a progressive candidate takes office in 2020. But which clean energy firms will reap the rewards is still debatable. If FuelCell’s innovative process is as economical as the firm claims it is, the stock could be a millionaire maker.
Not everyone is skeptical about the potential for fuel cells — Grand View Research sees the market reaching $33 billion over the next 7 years. But will FuelCell get a large piece of that pie? That’s still a big question mark.
On one hand, FuelCell’s story sounds picture perfect — in Tulare, California the firm has been able to turn excess gas from a water treatment plant into energy. That in-turn has been used to power the plant itself, giving FuelCell a $14.4 million sale-leaseback agreement.
But big deals like that one are few and far between at present. When the firm reported 4th quarter results, InvestorPlace’s Luke Lango said as much — there’s no clear path to profitability for FuelCell, and that’s worrying.
The Current Market Is Telling
This week we’ve seen a number of stocks tick higher as consumers panic-buy in preparation for the onslaught of the coronavirus. Stocks like FuelCell, that offer off-grid energy potential should be included in that rally as doomsday preppers get ready for a worst-case scenario. But fuel cell technology has largely been left out of the current rally because there’s too much uncertainty.
Buying FuelCell stock now is speculation on top of uncertainty. No one knows how bad coronavirus is going to get. Likewise, the economic impact the virus has already set in motion is largely unknown. That has caused a ton of uncertainty in financial markets and sparked a sell-off of epic proportions last week. Do you really want to make a speculative purchase in that environment?
I certainly don’t.
The Bottom Line on FuelCell Stock
Even in the best of times, FuelCell is a risky bet. The firm’s inability to turn a profit coupled with its lack of clarity regarding future prospects is worrying. The firm is due to release its first quarter results on Monday, March 16 and the numbers are likely to mirror the disappointing figures seen in Q4.
For now, FuelCell looks like a lot of hype. Unless revenue picks up and management can show a feasible path to profitability, it’s difficult to get behind FuelCell stock. With coronavirus likely to cast a shadow over the market for the next few weeks, I’ll be looking at blue-chip value plays with attractive entry points and keeping speculation to a minimum. Companies like FuelCell, that are struggling to turn a profit simply can’t fare well in times of economic crisis no matter what business they’re in, so I’d steer clear.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.