Do not get too excited about the performance of the FuelCell share in August

FuelCell Energy News: Why FCEL stock flies 10% today

<p>FuelCell Energy (NASAQ: FCEL) is a supplier of fuel cell power systems. Its SureSource power plant is used to generate relatively small amounts of electricity. Its customers include hospitals and utilities; each of the latter uses its fuel cells to generate one megawatt of electricity. So far this year, the FCEL share has risen by 30%, but it is still not far from its five-year declines. It may sound like a good time to buy the shares, but do not pull the trigger yet.

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FuelCell may not be a good choice for those considering investing in hydrogen fuel cell technology. FuelCell’s Q2 results were strong

The new coronavirus pandemic has had a negative impact on many companies. There were legitimate fears that FuelCell would feel the pandemic. A slowdown in commercial activity and cost savings from organizations could have affected its revenues and future bookings.

Instead, when FuelCell reported its second-quarter results on June 12, the company noted that its second-quarter revenue had increased 105% to $ 18.9 million. The company reported a loss of $ 8.1 million on its operations, compared to a loss of $ 17.6 million a year earlier. FuelCell’s operating expenses fell 41% year-on-year and the order backlog increased by 6% to $ 1.34 billion. Its net loss of 7 cents per share was slightly higher than analysts had expected, but it was a huge improvement over the loss of $ 2.06 per share that it had reported in the second quarter of 2019.

All this sounds pretty good, especially in connection with the pandemic, and FCEL shares appeared in the wake of the news. So why did I suggest that FuelCell might not be the best game in the hydrogen fuel cell sector?

Plug Power Effect

There has been an interesting movement in the FCEL share since the beginning of August, but it was not because it had anything to do with FuelCell.

The hydrogen-fuel cell industry is relatively small, so an event that affects a company can have a direct impact on others’ stocks. A similar phenomenon occurs when shares of electric car manufacturers react to major announcements from Tesla (NASDAQ: TSLA).

On August 3, Plug Power (NASDAQ: PLUG) announced that it would supply hydrogen fuel cells to a large UK supermarket chain. The United Kingdom is a new market for the company and the deal represented the first large-scale expansion of fuel cell technology in that country.

The PLUG share popped up 19% on the news and continued to climb. The FCEL share jumped 14% the same day and then followed Plug Power closely over the next few weeks. Even after returning some gains in recent days, Plug shares have risen by 33% in the past month, while FuelCell has risen by 17%.

So far in 2020, FCEL shares have been much more volatile than Plug Power, and FuelCell has tended to rise and fall rapidly. In total, it climbed 31% in 2020. The PLUG share has risen since June and has had a huge 252% profit so far this year.

The contrast between the two companies is much stronger in light of their respective share prices over the past five years. During that time, FuelCell Energy’s shares have fallen by approximately 97%. However, Plug Power’s share has increased by over 500%. Comparing the performance of these two companies since 2015 is like looking at a mirror image.

Different focus

Plug Power and FuelCell Energy both use hydrogen fuel cell technology, but they both specialize in very different markets.

FuelCell builds SureSource power plant. Its focus is on delivering clean, alternative energy through electric power plants. These plants can also be used to produce excess hydrogen for refueling vehicles. Plug Power, on the other hand, makes hydrogen fuel cell systems that companies use instead of batteries to power forklifts and short-distance vehicles.

Electric cars for consumers have increased in popularity. But when it comes to commercial fleets, it is not an option to have to wait hours for a battery to be recharged.

It has made hydrogen fuel cell systems like Plugs increasingly popular. Some car manufacturers, including Toyota (NYSE: TM), continue to bet that hydrogen fuel cells may eventually win on battery-powered electric cars in the consumer market as well. In June last year, I wrote that the PLUG share would float. It was at $ 2.55 then, and it changes hands for $ 13.65 now.

The FuelCell Energy portfolio has gone in the opposite direction, largely because it competes with a wide range of alternative energy sources, including solar and wind power. In addition, rock bottom prices for natural gas have made it more difficult to convince organizations to replace their gas-fired electrical installations with alternative energy solutions.

The points

Do not calculate FuelCell in the long run. But do not mistake the transfer of FCEL shares over the past two weeks for a signal that the company’s assets have changed. And if you’re looking for a hydrogen fuel cell game that goes nowhere but up, Plug Power is definitely the better option right now.

At the time of writing, Brad Moon had no position in any of the above securities.