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Should I Buy FuelCell As It Outpaces Tesla For Yearly Returns?

The fuel cell company’s stock is soaring and has had some impressive returns so far this year, but is the stock a good investment?

FuelCell Energy Inc (NASDAQ: FCEL) stock is up over 16% in the past five days and a whopping 152% in the last 12 months.

With a market cap of $2.4 billion, it is much smaller than industry leader Tesla (NASDAQ: TSLA) but it still has returned larger gains of late. However, a soaring share price is not always an indication of a good investment, so let’s take a deeper look. 

What is FuelCell? 

FuelCell designs, manufactures, and services to Direct Fuel Cell power plants. It receives most of its revenue from its services segment. From the company’s website, FuelCell said it is:

“A global leader in fuel cell technology with a purpose of utilizing its proprietary, state-of-the-art fuel cell platforms to enable a world empowered by clean energy.” 

FuelCell reports soaring sales 

Last week, FuelCell recorded results for the third quarter. During the quarter, sales increased 43% to $26.8 million which was boosted by a $7.2 million jump in their service agreements and license revenues, which also topped Wall Street’s estimates. The firm also posted a loss per share of $0.04, narrower than the loss of $0.07 it recorded last year, which also beat estimates. 

After the earnings beat, the stock jumped around 9% in the week after the release. However, it wasn’t all good news. 

The worrying part is that it also posted a backlog of $1.3 billion in Q3, down 2.25% year-over-year, which means it has failed to secure any big contracts. This is bad news because this huge backlog could take up to 20 years to convert into sales. As the company does not have any product to rely on, it might take the company a while before it brings in more revenue. 

Should I buy FuelCell stock? 

In July, the firm sold around 44 million of its shares which generated net proceeds of $369 million. The sale helped it end Q3 with cash and cash equivalents worth an estimated $494 million. While it has more cash to play, shareholders are standing by and watching their stake in the company dwindle as share sales dilute the value of their positions, something very important for shareholders to keep in mind.  

In addition, the stock also trades at 27x its projected 2021 revenues. With no major clients won in the last quarter and an overreliance on its services segment, this might be a risky investment. 

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