FuelCell Energy (NASDAQ:FCEL) peaked on the close of Feb. 9 when it reached $27.96. As of May 26, it was at $9.41. If you didn’t sell your FCEL stock shares in February, there was plenty of time to do so as it fell further. And if you’re still in it for some ridiculous reason, you should sell now.
In my article on Feb. 2, I said that FCEL stock was not worth anything near its valuation at the time. Its market capitalization then was just over $7 billion. Now its market value is at $2.74 billion. But three months ago, the bloated market cap had no connection to any kind of financial reality at the company.
FuelCell’s Miserable Financials
For example, FuelCell’s revenue in the fourth quarter was just $17 million. It had an adjusted EBITDA loss of $8.6 million.
Since then, the company has released Q1 numbers that are just as miserable. Revenue was lower at just $14.877 million, and its net income loss was $14.373 million. Its adjusted EBITDA loss was almost as bad as Q4’s at $7.3 million.
The sad fact is that FuelCell has no shot of becoming profitable anytime soon. Analysts do not see the company turning a profit until October 2025 at the earliest.
Given these numbers, it still makes no sense for this company to have a market value of $2.74 billion. FuelCell does have cash and securities of $178.6 million, not including restricted cash. However, page 6 of the 10-Q for Q1, filed on March 16, shows that its Q1 cash burn was completely out of control. It burnt through $30.3 million in Q1, and capital expenditures and project spending were another $4.591 million. That brings its total Q1 cash burn to $34.89 million.
At this pace, the $178 million in unrestricted cash will drop by 78% a year from now. The total cash burn run rate is now $139.56 million per year (i.e., $34.89 million x 4.) At that point, the unrestricted cash balance could be down to just $39 million. Using this measure, FCEL stock will no longer be able to maintain a market valuation of $2.74 billion.
This is despite some good news in the report and the company’s promises of increasing revenue. For example, as of Jan. 31, FuelCell Energy reported that its backlog was at $1.27 billion. This was $98 million lower than in the prior year.
What To Do With FCEL Stock
Despite the decreased backlog, the stock’s overvaluation is still way out of control. On Oct. 30, 2020, just before the election, FCEL stock was at $2. By Feb. 9, it had shot up to $27.96 based on speculation that President Joe Biden’s Administration might increase interest in hydrogen fuel cell trucks and power units. But since then, the reality that not much is going to change — at least in the short run — has begun to sink in.
As a result, I suspect that FCEL stock has much further to fall — possibly as much as 50% from here. That would bring it below $5 to $4.70.
So far, most analysts don’t agree with me. TipRanks.com has the average price target at $10.63, and Seeking Alpha lists the average target among analysts at $11.59. MarketBeat reports that the average target is $9.10.
On the other hand, none of these analysts see a huge upside in FCEL stock. One wonders where these analysts were when the stock was wildly overvalued earlier this year. Savvy investors will continue to see through the hype that pushed FCEL stock beyond a reasonable limit and kept the price too high.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.