FuelCell Energy (FCEL)

Carbonate fuel cell technology developer FuelCell Energy (NASDAQ:FCEL) missed Wall Street’s revenue expectations in Q4 CY2024, but sales rose 13.8% year on year to $19 million. Its non-GAAP loss of $1.44 per share was 6.2% below analysts’ consensus estimates.

Company Overview

Founded in 1969, FuelCell Energy (NASDAQ: FCEL) is a leading manufacturer and developer of carbonate fuel cell technology for stationary power generation.

Renewable energy companies are buoyed by the secular trend of green energy that is upending traditional power generation. Those who innovate and evolve with this dynamic market can win share while those who continue to rely on legacy technologies can see diminishing demand, which includes headwinds from increasing regulation against “dirty” energy. Additionally, these companies are at the whim of economic cycles, as interest rates can impact the willingness to invest in renewable energy projects.

Competitors of FuelCell Energy include Bloom Energy Corporation (NYSE: BE), Plug Power (NASDAQ:PLUG), and Ballard Power Systems (NASDAQ: BLDP).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, FuelCell Energy grew its sales at an exceptional 14.1% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. FuelCell Energy’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 8.2% over the last two years. FuelCell Energy isn’t alone in its struggles as the Renewable Energy industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

FuelCell Energy also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. FuelCell Energy’s backlog reached $1.31 billion in the latest quarter and averaged 1% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for FuelCell Energy’s products and services but raises concerns about capacity constraints.

This quarter, FuelCell Energy’s revenue grew by 13.8% year on year to $19 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 56.4% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will catalyze better top-line performance.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

FuelCell Energy has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a negative 18.9% gross margin over the last five years. That means FuelCell Energy lost $18.93 for every $100 in revenue.

FuelCell Energy’s gross profit margin was negative 27.4% this quarter. The company’s full-year margin was also negative, suggesting it needs to change its business model quickly.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

FuelCell Energy’s high expenses have contributed to an average operating margin of negative 112% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, FuelCell Energy’s operating margin decreased by 57.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. FuelCell Energy’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, FuelCell Energy generated a negative 173% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although FuelCell Energy’s full-year earnings are still negative, it reduced its losses and improved its EPS by 36.5% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For FuelCell Energy, its two-year annual EPS growth of 11.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q4, FuelCell Energy reported EPS at negative $1.44, down from negative $1.25 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects FuelCell Energy to improve its earnings losses. Analysts forecast its full-year EPS of negative $7.46 will advance to negative $5.32.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

FuelCell Energy’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 132%, meaning it lit $132.29 of cash on fire for every $100 in revenue.

Taking a step back, we can see that FuelCell Energy’s margin dropped by 73.3 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because it’s already burning cash. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business.

FuelCell Energy burned through $52.77 million of cash in Q4, equivalent to a negative 278% margin. The company’s cash burn was similar to its $68.83 million of lost cash in the same quarter last year.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

FuelCell Energy burned through $184.6 million of cash over the last year, and its $143.5 million of debt exceeds the $110.7 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the FuelCell Energy’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of FuelCell Energy until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly FuelCell Energy blew past analysts’ backlog expectations this quarter. On the other hand, its revenue missed significantly and its adjusted operating income fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $4.68 immediately following the results.

Updated: May 16, 2025 at 10:59 PM EDT

Before investing in or passing on FuelCell Energy, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

FuelCell Energy’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months, its declining operating margin shows the business has become less efficient. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its cash profitability fell over the last five years.

FuelCell Energy’s forward price-to-sales ratio is 0.5x. The market typically values companies like FuelCell Energy based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy.

Wall Street analysts have a consensus one-year price target of $8.67 on the company (compared to the current share price of $4.10).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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