The wild swings that shares of fuel cell companies took Tuesday highlighted ongoing questions about the sector's future amid the wider rush to find alternative sources of energy.
Fuel cells, which use hydrogen or gases to generate electricity via chemical reactions, have been touted as having huge potential, but companies in the sector are still seeing little revenue and ongoing losses.
Signs that that may be changing sent shares of FuelCell (FCEL), Plug Power (PLUG) and Ballard Power Systems (BLDP) soaring in recent weeks.
The companies enjoyed their latest stock rally after FuelCell reported stronger quarterly results late Monday. But a report from short-seller Citron Research, which called Plug Power a speculative "casino stock," sent the sector into a tailspin by Tuesday afternoon.
Plug Power shares collapsed 41.5%, after a run that took the stock from less than 1 in early December to more than 10 on Monday. Fuel Cell fell 16.5%, and Ballard plunged 26%, partly reversing similar recent surges.
Fuel cells are becoming more competitive vs. traditional sources of power, but it's still a young market, said Haresh Kamath, energy storage research program manager at the Electric Power Research Institute.
"There have been a lot of deployments out there, but it's not something you could characterize as producing profits," he told IBD.
Investors have bought fuel cell stocks on prospects of strong growth as the technology is adopted in industry and potentially in autos.
But even in the industrial market, where the technology is further along, fuel cell use is still in the early stages, he noted.
Still, government subsidies have helped put fuel cell costs close to parity with traditional, natural-gas-powered systems from industrial giants like GE (GE) and are still competitive even without the public aid, said Stifel analyst Jeff Osborne.
FuelCell said late Monday that fiscal first-quarter revenue climbed 22% to $44.4 million, beating consensus for $43.4 million. The company lost 4 cents per share, meeting estimates and improving from a 7-cent loss the same quarter a year ago.
At the end of Q1, FuelCell had completed projects in North America with a 70-megawatt annual energy run rate, enough energy to provide power to about 70,000 homes. It also has installed plants in Asia and Europe and is expanding globally.
"We're seeing ourselves being competitive on these large projects, and in the past we would never have even pursued them," FuelCell CEO Chip Bottone said in a conference call Tuesday morning.
He added that the price of natural gas spiked during winter but is coming back down, lowering the cost of fuel and helping to increase sales.
The company also received further support that could help it expand its offerings in the future. The Energy Department granted an additional $2.8 million to FuelCell to develop large-scale fuel cell energy for industrial use, the company said Friday.
But those prospects were overshadowed Tuesday by Citron Research's report, which argued that the fair value of Plug Power shares is just 50 cents vs. Monday's close of 10.31.
Citron also questioned the reliability of the company's guidance and suggested its sales depend on government incentives, due to end in a few years, that subsidize fuel-cell-powered equipment.
"Well over a decade as a public company, during which they have lost close to $850 million while developing no (intellectual property) or meaningful revenue growth," Citron said.
Shares of Plug Power, a maker of fuel cell power systems for forklifts, had been flying since reaching a deal last month with Wal-Mart Stores (WMT), which will install more than 1,700 of them at six North American distribution centers.
Plug Power has predicted it will turn a profit this year and reports quarterly results Thursday. Analysts expected Q4 losses to narrow to 8 cents a share from 22 cents a share on a 26% hike in revenue to $7.45 million.
Ballard, which makes fuel cell products for Plug Power's forklift systems, was also downgraded early Tuesday to hold from buy at Lake Street Capital Markets, which warned of potential downside if the company's new programs don't develop as expected.