FuelCell Falls as Alternative Energy Fad Fades

FuelCell Energy (FCEL) fell 13% (and counting) yesterday on news that its loss widened in the third quarter (see earnings call transcript). But FuelCell’s stock is suffering, not from bad quarterly results, but from the deflation of a "fashionable investment" bubble.

In the last year, alternative energy has been a popular investment sector to say the least. And while solar and wind energy companies have already proved they can turn a profit with their products, even if they must rely on the tax incentives of kind-eyed governments to do it, fuel cell manufacturers haven’t seen such great results.

But that didn’t stop investors from piling into fuel cell companies with abandon in the hopes that other investors would be just as stupid about their stock decisions and send the stocks of unprofitable companies higher. And it worked.

In late December, FuelCell hit a high of $13.14. And it hit another high of $10.30 in early June, as oil prices catapulted toward daily record highs.

But now oil prices are back down. Investors are feeling foolish for buying into a fad, and they’re using any excuse to sell out of the stock.

If they had been paying attention the first time they bought shares, FCEL investors would have noticed that FuelCell has never been profitable. The company has posted a loss every year since 2003, according to its annual reports. And no one should be investing in the company until it actually starts making some money out of its earth-changing new technology.

If you profited from the alternative investing fad, congratulations. If you didn’t, sell your shares and get out now before even more "fashionable" money exits the stock.

Maybe you’re a true believer, and you really think fuel cells will someday replace coal- and oil-generated electricity. That’s great, but as a true believer, you should have the patience to wait until better results from the company signal a good buy in point.

Disclosure: none

Comments

[ArtS]

A fuel cell is not an alternative energy source. In fact a fuel cell is not a source of energy at all. It is an energy converter. It burns hydrocarbons or hydrogen. If hydrogen, then that hydrogen must be manufactured. Potentially hydrogen could be manufactured from wind power or solar cell, but currently hydrogen is likely to be manufactured from power supplied by the existing electrical grid, which likely means burning more hydrocarbons—coal or natural gas. As a fuel cell only exchanges chemical energy for electrical, it is subject to the inflexible laws of thermodynamics. Roughly stated as I recall, “There is no free lunch.” That is, the energy cost of manufacturing hydrogen will always be greater than the energy recoverable by burning that hydrogen in a fuel cell. Unless a true alternative energy source—wind or solar—is used to manufacture the hydrogen initially, that is.

[lldoug]

If hydrogen is used as an energy carrier, the entire pollution problem is moved to the production of hydrogen. Simplifies a lot of concerns. The problem is, that with a investment in caoital equipment, I can produce my own hydrogen. How do you tax that?

[User 222873]

Even worse, FCEL has a negative gross margin! When they ship more units, they lose more money and when they don't ship enough units, their negative gross margin gets worse.

Or as the company likes to say, their product cost to revenue ratio is currently positive.

[romorris]

Can't help but notice that you were keeping your mouth shut when the price was up. Oh, how a little bad new brings out the cowards looking to appear smart. Alternate energy is no fad. Fads happen for no apparent reason. There reason here is obvious.

[GUEST 101]

The U.S. market for wind turbine components and systems will be worth $60.9 billion in 2013, up from $7.9 billion in 2007 and an estimated $11.2
billion in 2008, according to BCC Research. The compound annual growth rate (CAGR) between
2008 and 2013 is expected to be 40.0%.

Photovoltaics drive thin-film market for energy applications
he global market for thin films in energy applications is projected to reach $3.9 billion in 2013 up from $1.1 billion in 2007 for a compound annual growth rate (CAGR) of 23.5%, according to BCC Research.

[Delbert]

Ms Grimmett must have been insulted by the CEO of FCEL to produce
such a "Grimm" report on this Company.........Hydrog... is a very important element in the World's fossil free energy future!....Fuel Cell Energy has developed a viable & proven technology, used by Hotels & hospitals and I believe waste management operations and other users
of energy........Ramping up to profitability in this major equiptment business is very cost intensive.........I'm long on FCEL, and with patience this Company will be a big WINNER!!

[User 253409]

Fuel cell technology will lose in the future compared to electricity, because of it's not efficient compared to electricity. Take cars and just think of it. First you need hydrogen, made of electricity. Manufacturing hydrogen costs energy. Then you convert the chemical energy of the hydrogen into electrical energy to run an electric motor.
Electric cars store the electricity directly in batteries or ultracapacitors, so you have one step less in energy coversion, which make electric cars more energy efficient.
The only reason that car makers still invest in fuel cells is that fuel cells generate more power than batteries. However, progress is made fast in the battery world and a promising technology are ultracapacitors, which combine (some of the) energy storing capacity of traditionla batteries and the power capacity of capacitors.

[longtermstocks]

"Fuel cell technology will lose in the future compared to electricity"

???? Fuel Cells convert hydrogen into energy ????

Needless to say I am long FCEL, and adding to my positions as the price dips.

[zgmi]

Need less to say, if your basic fuel is LPG or natuaral gas, you are not burning it to get electricity to produce hydrogen but using it directly as fuel. With a conversion ratio of 50% or higher, this is still higher than solar or wind!