FuelCell Energy could be turning a corner

The price action in FuelCell Energy NASDAQ: FCEL is down sharply following a weak report, but this could be setting up a solid buying opportunity for penny stock traders. The company's weak results are offset by business advancements that set it up for revenue growth in 2024. Among the developments are the commissioning of the Long Beach facility in California and the Derby projects in Connecticut. 

These power generation, carbon capture and hydrogen-producing facilities went into commercial operation in November and should begin to impact results as soon as the following earnings report. Until then, the company will face challenges, including diminishing appetite for hydrogen projects. The company's Q3 results are down compared to last year and weaker than expected, with softness in all segments. 

FuelCell revenue shrinks, cash burn improves, dilution weighs

FuelCell Energy had a mixed quarter, with the top line underperforming while the bottom line outperformed. The company generated $22.5 million in revenue, a decline of 42.6% YOY that missed the consensus by 1100 basis points. While headway was made in many areas, power generation, product sales, and services were weaker than expected, with little reason to believe demand would pick up in FQ1. 

The margin was solid but resulted in a net loss. The good news is that losses are diminishing, leaving the GAAP -$0.07 up substantially compared to last year and $0.02 better than expected. The bad news is that much of the improvement is fleeting due to its cause. Product revenue recognized in the quarter had no associated cost of goods, essentially offsetting the weakness identified in a prior quarter. 

No guidance was given, but there is ample cause for hope. Along with the California and Connecticut commissionings, the company announced progress with its reentry into Korea and several new projects with non-binding agreements. However, even with these projects and new ones, the outlook for revenue growth and profitability could be better. Analysts expect only 25% growth in 2024, with losses to continue. 

The balance sheet is in decent shape considering the cash burn, but there is considerable risk of dilution. The cash position, down 16% YOY, is sufficient to sustain operations at the current burn pace but is supported by share sales. The company sold 2.0 million shares during the quarter and can be expected to continue selling. As it is, the company's outstanding share count is up more than 11% YOY, with the capacity to double the float if needed. 

Analysts could tip the balance; there is no catalyst for upgrades yet

A few analysts are HODL-ing FuelCell Energy and see the potential for a double-digit upside, but only a few. The caveat is that MarketBeat tracks four analysts who rate the stock a weak Hold with a price target that's been halved over the past year. Because the results continue to be weak and there is concern the company will be able to gain sufficient traction, there is little reason to expect analysts' sentiments to change now. Until then, this stock is likely range-bound at current levels with a chance of hitting the low end soon. 

The price action in FuelCell suggests a bottom could be in play, but has not yet been confirmed. Until then, the downtrend in the action is still intact and could lead this market down to the $1.00 level. That is consistent with the analysts' lowest price targets and maybe a solid price floor. If not, this stock could fall deep into penny stock territory.