TPS Trade Alert – September 19, 2013
September 19, 2013
Recommendation:
Buy FuelCell Energy (NASDAQ: FCEL) up to $1.50 per share.
Trade Rationale:
One of the major themes which will dominate the energy sector for years to come is the push for cleaner, more efficient energy.
With higher oil prices, concerns over nuclear energy, pollution from coal, and a general global shift towards green energy, there are multiple reasons why demand for clean, efficient energy will grow by leaps and bounds.
Already, the shift is underway to cleaner fuels such as natural gas and renewable energy such as solar and wind power. But, new sources of energy aren’t the only way the industry is changing.
In fact, power generators themselves are undergoing significant changes and improvements.
And that’s where this FuelCell Energy (NASDAQ: FCEL) comes in.
FCEL is an integrated fuel cell company which develops and services stationary fuel cell power plants. The company provides clean, efficient power generation for electric utilities, commercial/industrial companies, and government customers.
The primary product offered by FCEL is the Direct FuelCell power plant. These power plants produce power electrochemically, without burning fuels. As such, they generate clean, quiet, and environmentally responsible alternatives to combustion-style generation.
These products can run on gas, methanol, diesel, biogas, coal gas, coal mine methane, and propane. The wide array of potential fuel sources provides versatility in various applications of energy production.
Additionally, Direct FuelCell (DFC) plants have several other important benefits.
First of all, DFC is more efficient because it generates less heat and uses less fuel. And, it emits virtually zero pollutants along with low carbon dioxide.
Moreover, the plants are quiet and don’t use up a lot of space. They can easily be located in populated areas. It also means FCEL can market its products to companies, universities, and others as on-site power generators.
Finally, management is actively working to expand the company’s footprint overseas. FCEL is expanding in both Asia and Europe through partnerships with existing power companies.
From a financial standpoint, FCEL clearly appears to be headed in the right direction.
In the most recent quarter, revenues came in at $53.7 million. That’s a whopping 81% year over year increase. Plus, the gains were driven by a higher volume of sales – in other words, growth.
Over the same time period, product backlog more than doubled. That’s a very good sign looking ahead. And, not only did the company have record sales, but it also achieved record gross margins.
Overall, the company posted a net loss from operations of $4.6 million. But, it compares favorably to the $10.5 million operating loss a year ago. Besides, if the company’s revenue growth continues at the current pace, FCEL should reach profitability within a year.
Meanwhile, the company has $81 million in cash compared to $68 million in debt. In addition, current assets are 1.8x current liabilities. Basically, the balance sheet looks fine.
Here’s the thing…
Although the company is showing impressive growth and is providing products and services in a rapidly growing industry, the shares are dirt cheap.
In fact, FCEL is trading at 1.48x sales, which is well below several of its direct competitors. Most of the competition is trading at levels between 2.5x and 3.0x sales.
Not to mention, in early 2010, FCEL shares were trading for just under $4 per share. With the economy on the mend – and demand for clean energy on the rise – there’s no reason the stock won’t reach those levels again.
Bottom line, now’s a great time to add shares of FCEL to your portfolio.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | FuelCell Energy |
| Ticker: | FCEL |
| Recent Price: | $1.31 |
| Market Cap: | $251.6 million |
| Avg. Daily Volume: | 2,060,890 shares |
Chart:
Category: TPS Trade Alert
