Getting In Cheap On FuelCell Energy, Inc. (NASDAQ:FCEL) Is Unlikely
When close to half the companies in the Electrical industry in the United States have price-to-sales ratios (or "P/S") below 1.9x, you may consider FuelCell Energy, Inc. (NASDAQ:FCEL) as a stock to avoid entirely with its 7.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
See our latest analysis for FuelCell Energy
How Has FuelCell Energy Performed Recently?
With revenue growth that's superior to most other companies of late, FuelCell Energy has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think FuelCell Energy's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, FuelCell Energy would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. The latest three year period has also seen an excellent 129% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 33% per annum as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 33% each year, which is not materially different.
With this in consideration, we find it intriguing that FuelCell Energy's P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.
The Bottom Line On FuelCell Energy's P/S
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Analysts are forecasting FuelCell Energy's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.
You should always think about risks. Case in point, we've spotted 3 warning signs for FuelCell Energy you should be aware of, and 1 of them can't be ignored.
If you're unsure about the strength of FuelCell Energy's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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