There’s no doubt that clean energy stocks are a hot commodity in today’s stock market. From Tesla (NASDAQ: TSLA) to Plug Power (NASDAQ: PLUG), investors have been pumping up the value of green stocks over the past few months. But one clean energy stock that has been at the center of a lot of debate is FuelCell (NASDAQ: FCEL). FCEL stock is up more than 60% from its March lows, but is it just another penny stock about to crumble?
Source: Kaca Skokanova/Shutterstock
FuelCell’s business centers around hydrogen-fuel cell technology. The firm builds SureSource power plants in order to deliver clean energy to clients. In the race toward creating greener energy sources, fuel cell energy like that provided by FCEL has an advantage because it doesn’t depend on environmental factors in order to deliver— wind and solar, on the other hand, are plagued with the issue of storage to ensure reliable delivery.
FCEL Stock Lags Behind
The trouble with FCEL stock, though, is that the firm isn’t in the best position to capitalize on investors’ thirst for green stocks. That’s because fuel cell technology isn’t entirely green. While FuelCell’s power plants produce markedly lower carbon emissions than traditional power plants, they’re not totally clean. Carbon dioxide is still a byproduct at hydrogen-fuel cell power plants, making solar and wind the better choice for those seeking a completely clean energy source.
The tradeoff between hydrogen-fuel cell power plants and solar energy has shifted even more in the favor of solar in recent months as battery storage technology improves.
Plus, now that traditional energy costs have fallen substantially, it’s hard to make a case for a ‘sort-of’ green technology like hydrogen fuel cell power plants.
FuelCell Struggles With Financial Burdens
To make matters worse, FCEL stock isn’t backed by a particularly strong company. FuelCell is still struggling to keep its head above water with razor thin margins. Management has said profit margins could climb to 20% once the company is able to scale up, but even that isn’t an enticing prospect for investors willing to take a risk on FuelCell.
That’s not to say that fuel cell technology isn’t worth investing in. In fact, as electric vehicles gain popularity, hydrogen fuel cell systems could be a huge growth opportunity. Unfortunately, that’s the direction FCEL’s competitors like Plug Power have been heading, making them better bets in this space.
Instead, FCEL is focused on its SureSource power plants with the goal of providing power to a wide range of businesses. While that might sound promising, it’s still very niche. It’s also under heavy competition from traditional power sources, which have come down in price considerably in recent months.
That doesn’t mean that hydtrogen-fuel cell power plants won’t gain momentum as a world-wide focus on clean energy continues. But the fact that FCEL stock was trading at just 30 cents per share at this time last year suggests much of that optimism is already priced in.
The Bottom Line of FCEL
I think there’s definitely a place for clean energy stocks in every investor’s portfolio right now, and it pays to look beyond some of then big names out there. But in my opinion, a lot of the optimism around FCEL stock comes from its proximity to actual winners like PLUG.
With that in mind, I’d be hesitant to jump into FuelCell stock at its current price tag of almost $3 per share. FCEL is a penny stock and that means volatility is a given. If you must, put FCEL on your watchlist and buy it if its carbon capture technology puts its plants back in the running as viable clean-energy options. But for now, I’d argue that the risks far outweigh the potential rewards at its current valuation.
As Luke Lango pointed out in his most recent commentary on FuelCell, the firm could be worth roughly $600 million in nine years if it successfully breaks into the utility market. At $3 per share, that’s its current valuation.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities.