Fluence Energy (FLNC)

Electricity storage and software provider Fluence (NASDAQ:FLNC) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 30.7% year on year to $431.6 million. On the other hand, the company’s full-year revenue guidance of $2.7 billion at the midpoint came in 15.3% below analysts’ estimates. Its GAAP loss of $0.24 per share was 10.3% below analysts’ consensus estimates.

Company Overview

Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ:FLNC) helps store renewable energy sources with battery systems.

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 Fluence Energy include Tesla (NASDAQ:TSLA) and private companies LG Chem Energy SOlutions and BYD Company.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Fluence Energy’s sales grew at an incredible 63.4% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Fluence Energy’s annualized revenue growth of 17.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Fluence Energy recent performance stands out, especially when considering many similar Renewable Energy businesses faced declining sales because of cyclical headwinds.

This quarter, Fluence Energy’s revenue fell by 30.7% year on year to $431.6 million but beat Wall Street’s estimates by 25.7%.

Looking ahead, sell-side analysts expect revenue to grow 62.5% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will fuel better top-line performance.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Fluence Energy has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 6.4% gross margin over the last five years. Said differently, Fluence Energy had to pay a chunky $93.60 to its suppliers for every $100 in revenue.

Fluence Energy’s gross profit margin came in at 9.9% this quarter, in line with the same quarter last year. On a wider time horizon, Fluence Energy’s full-year margin has been trending up over the past 12 months, increasing by 4 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Fluence Energy’s high expenses have contributed to an average operating margin of negative 8.2% 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.

On the plus side, Fluence Energy’s operating margin rose by 7.4 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

Fluence Energy’s operating margin was negative 10.2% this quarter. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Fluence Energy’s full-year earnings are still negative, it reduced its losses and improved its EPS by 7.6% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Fluence Energy, its two-year annual EPS growth of 42.8% was higher than its five-year trend. Its improving earnings is an encouraging data point, but a caveat is that its EPS is still in the red.

In Q1, Fluence Energy reported EPS at negative $0.24, down from negative $0.05 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Fluence Energy’s full-year EPS of negative $0.20 will reach break even.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Fluence 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 11.7%, meaning it lit $11.71 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Fluence Energy’s margin dropped by 12 percentage points during that time. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Fluence Energy burned through $53.76 million of cash in Q1, equivalent to a negative 12.5% margin. The company’s cash flow turned negative after being positive in the same quarter last year, which isn’t ideal considering its longer-term trend.

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.

Fluence Energy burned through $292.2 million of cash over the last year. With $568.6 million of cash on its balance sheet, the company has around 23 months of runway left (assuming its $389.9 million of debt isn’t due right away).

Unless the Fluence 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 Fluence Energy until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We liked that Fluence Energy beat analysts’ revenue and EBITDA expectations this quarter. On the other hand, its full-year revenue guidance missed significantly and its full-year EBITDA guidance fell short of Wall Street’s estimates. The company said it "is revising its fiscal year 2025 guidance to reflect the currently-anticipated impact of ongoing economic uncertainty in the U.S. market, caused particularly by tariff policy that led to what the Company expects is a temporary deceleration in its U.S. customer contracting activity." Overall, this was a worrisome quarter. The stock traded down 21.9% to $3.51 immediately after reporting.

Updated: May 22, 2025 at 11:17 PM EDT

Before deciding whether to buy Fluence Energy or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Fluence Energy is a pretty good company if you ignore its balance sheet. For starters, its revenue growth was exceptional over the last five years. And while its cash profitability fell over the last five years, its backlog growth has been marvelous. On top of that, Fluence Energy’s expanding operating margin shows the business has become more efficient.

Fluence Energy’s P/E ratio based on the next 12 months is 12.1x. Despite its notable business characteristics, we’d hold off for now because its balance sheet concerns us. We think a potential buyer of the stock should wait until the company’s debt falls or its profits increase.

Wall Street analysts have a consensus one-year price target of $7.41 on the company (compared to the current share price of $5.03).

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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