FuelCell Energy, Inc. (FCEL) engages in the design, manufacture, installation, sale, and servicing of stationary fuel cell power plants for distributed baseload power generation. The company serves markets including utilities, independent power producers, industrial and process applications, healthcare, and commercial markets.

Shares of FCEL plummeted in its last trading session after the company reported wider than expected losses in its second-quarter results. The company’s revenue grew 17.4% year-over-year to $16.38 million. However, the top line missed the FactSet consensus of $32.58 million. Net loss increased to 8 cents per share, which was wider than the FactSet consensus of 5 cents per share.

FCEL’s stock has declined 26.9% year-to-date and 66.3% over the past year to close yesterday’s trading session at $3.80. It has slumped 6.6% intraday.

Here are the factors that could affect FCEL’s performance in the near term:

Bleak Financials

For the fiscal second quarter ended April 30, FCEL’s gross loss increased 53.7% year-over-year to $7.31 million. Loss from operations rose 62.3% from the prior-year quarter to $28.22 million. Net loss attributable to common stockholders and net loss per share came in at $31.02 million and $0.08, up 57.3% and 33.3% from the same period the prior year.

High Valuations

In terms of its forward EV/Sales, FCEL is currently trading at 9.46x, 473.7% higher than the industry average of 1.65x. The stock’s forward Price/Sales multiple of 10.99 is 707.4% higher than the industry average of 1.36. In terms of its forward Price/Book, it is trading at 3.06x, 17.8% higher than the industry average of 2.60x.

Negative Profit Margins

FCEL’s trailing 12-month gross profit margin, EBITDA margin, and net income margin of a negative 10.33%, 80.18%, and 110.65% are substantially lower than their respective industry averages of 29.30%, 13.28%, and 6.69%.

Its trailing 12-month ROE, ROTC, and ROA of a negative 21.28%, 8.87%, and 11.20% compare to their respective industry averages of 14.31%, 7.08%, and 5.29%.

POWR Ratings Reflect Bleak Prospects

FCEL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

FCEL has a Quality grade of F in sync with its bleak profit margins. The stock has an F grade for Stability, consistent with its five-year monthly beta of 4.36. It also has a D grade for Value, which is justified by its lofty valuations.

In the 93-stock Industrial – Equipment industry, it is ranked #88.

Click here to see the additional POWR Ratings for FCEL (Growth, Momentum, and Sentiment).

Bottom Line

The company’s financial performance in its last reported quarter has been disappointing. And considering its bleak bottom line and negative profit margins, I think the stock might be best avoided now.

How Does FuelCell Energy, Inc. (FCEL) Stack Up Against its Peers?

While FCEL has an overall POWR Rating of F, one might consider looking at its industry peers, Standex International Corporation (SXI) and Preformed Line Products Company (PLPC), which have an overall A (Strong Buy) rating, and nVent Electric plc (NVT) and Compagnie de Saint-Gobain S.A. (CODYY), which have an overall B (Buy) rating.

FCEL shares closed at $3.76 on Friday, down $-0.04 (-1.05%). Year-to-date, FCEL has declined -27.69%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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