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FuelCell Energy Will Justify the Hype Over the Long-Term

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FuelCell Energy (NASDAQ:FCEL) stock has been making money for both bulls and bears in 2021.

a picture of a fuel cell
a picture of a fuel cell

Source: Kaca Skokanova/Shutterstock

Excitement over alternative energy caused FCEL stock to rise to nearly $28 per share in February. Disappointment over President Joe Biden’s budget sent it as low as $6 per share early this month. It closed yesterday at $7.57. The shares have a market capitalization of $2.77 billion.

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Stock pundits write about FuelCell Energy a lot. It’s a common assignment for InvestorPlace’s contributors.

FuelCell Energy

FuelCell Energy makes hydrogen power plants for utilities and other large power users. It uses hydrogen as a fuel, combining it with oxygen from the air to produce electricity and water.

That’s the reverse of the hydrolysis process you may have studied in school, in which electricity is used to fuel the breakdown of water into its constituent gases.

Fuel cells come in various sizes. Most of those of Plug Power (NASDAQ:PLUG), which is often compared with FuelCell Energy, are small and used to power warehouse forklifts. All fuel cells need fuel, in the form of hydrogen, and much of Plug Power’s recent run has been based on its work in creating hydrogen fuel.

The owners of FuelCell Energy’s equipment might buy Plug Power’s hydrogen. But most hydrogen produced today is “blue” hydrogen, meaning that its production is powered by natural gas.

If “green” hydrogen, produced using electricity derived from renewable sources, is not available, FuelCell’s main advantage is that it’s quiet. You can use it for backup power in a residential neighborhood, and it won’t wake the cat when it comes on.

Speculation and Misunderstanding

FCEL stock doesn’t fluctuate based on these fundamentals. It doesn’t rise and fall with utility demand or the price of hydrogen. It doesn’t even respond to the company’s own financial results.

For all of 2020, FuelCell Energy had sales of almost $71 million. For the first two quarters of 2021, its revenue was about $40 million. In the second quarter, its revenue was twice as high as in Q1.

The company is slated to report its Q3 results on Dec. 14, and analysts, on average, expect its sales for the quarter to be almost $21 million. That means that it’s delivering steady growth of a little over 10%. But profits remain elusive for FuelCell, although the company might have come close in Q3.

Why have those results produced a market capitalization of $2.77 billion? Why was the market capitalization of FCEL stock $10 billion in February?

It has to do with speculation and misunderstanding. Speculators follow stock charts with little regard to what companies are doing. To them, FCEL stock might as well be Bitcoin (BTC-USD). Read this story from Zack’s, then tell me what FuelCell Energy does.

Try researching the fuel cell market, and you are likely to find stories about electric cars. Although fuel cells can be used in cars, FuelCell Energy’s fuel cells are not used in cars.

FuelCell Energy’s fuel cells are more akin to Tesla’s (NASDAQ:TSLA) Powerwall units. They provide backup power.

Demand for them is based on utilities wanting to keep the lights on, on reducing volatility in the grid, and on the anticipated, large supply of hydrogen.

The Bottom Line on FCEL Stock

FuelCell Energy has a bright future. It had a bright future when I was writing about it a decade ago, when I briefly covered renewable energy.

The company is doing interesting things, like using the gas from garbage dumps to fuel wastewater treatment. FuelCell Energy even has markets in coal country, where its fuel cells are sold as carbon capture units.

But FuelCell’s future remains in the future. Its sales will rise as hydrogen fuel becomes more plentiful and as we become more dependent on dependable grid power.

The company is not connected to electric cars. It’s a long-term play on a greener future, with an emphasis on long-term.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.

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