FuelCell Energy, Incorporated Is Building Up Steam
If you're looking to put some money to work in the green energy sector, or just into a fabulous microcap growth stock, FuelCell Energy, Inc (NASDAQ: FCEL) is a good target. The company makes, markets, and services a line of hydrogen fuel-cell applications for businesses and industries and is seeing demand. The company's business took a hit during the pandemic but has since bounced back strongly and it looks like the company is beginning to gain some momentum. While backlogs fell slightly versus last year that reason is due to fuel pricing and not to business activity. With backlogs at high levels and demand for alternative energy solutions growing, we see this company building on gains made over the last year and accelerating its already high pace of growth.
FuelCell Industries, Incorporated Rockets Higher On Surprise Results
FuelCell Industries had a surprisingly good quarter for more reasons than one. Not only is the company's revenue growing, but the revenue growth is supported by service and license revenue that we view as sticky and recurring. In terms of the net revenue, the company posted $26.8 million for a gain of 43.3% over last year. This is versus an easy comp but beat the consensus by 3000 basis points to grow 18% over the 3rd quarter of 2019. Within that, service and license revenue more than doubled while power-generation revenue grew 32%. The Advanced Technologies segment is the only one to show weakness, it contracted by 9% to account for 23% of Revenue.
Moving down the report, the company was able to leverage its fixed cost and control SG&A during the quarter and produced earnings above consensus estimates. The -$0.04 in GAAP earnings is a penny better than the consensus estimate and much better than the general market consensus which was expecting the company's loss to widen. The best news is that margin gains are due to operating efficiencies within the company’s business that will persist and improve in future quarters.
The company did not give any guidance but management commentary is positive. That along with the backlog suggests to us that business will at least remain steady and that means increased revenue from both services and licenses. The current consensus for the 4th quarter is a sequential downtick in revenue worth roughly 25%. We do not see that happening, we expect to see FuelCell exceed its consensus estimate by several thousand basis points unless the analysts start getting busy and raising their targets.
FuelCell Energy Sparked A Short-Covering Rally
The data from Marketbeat reveals a high short interest in shares of FuelCell energy that should keep price action edging higher until the analysts start getting active. The stock’s short interest was above 16% at last report and high enough to ensure steady buying for several days if not a week or more. Technically speaking, the Q3 report was a major catalyst that sent shares up more than 15% to break above the short-term moving average. That is a bullish move.
The charts look like FuelCell Energy has begun a reversal. Not only did the stock crossover and close above the short-term moving average but the indicators are also indicating a buy. We expect to see price action move up to test resistance at the $7.50 to $8 range in the near term and then break out to new highs soon after. Longer-term, assuming the business continues to accelerate as we envision, shares of FuelCell energy should be retesting the $12.50 and $15 levels by the end of the year or first quarter of 2022 at the latest.
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