FuelCell Energy (NASDAQ-FCEL) released its third quarter 2022 financial results on September 8. The report is characterized by higher earnings that exceed expectations, but more execution risk and stock dilution, which hurts the attractiveness of the company.
FuelCell Energy stock reacted favorably to the quarterly results, rising 14% to $4.37 or a two-week high. The stock is also boosted by the approval of the Cut Inflation Act which has lifted the long-term outlook for hydrogen stocks.
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The fuel cell technology developer reported revenue of $43.1 million versus $26.8 million year-over-year and a gross loss of ($4.2) million versus to gross profit of $1.1 million in the third quarter of 2021. The rise in revenue is the result of the delivery of six more modules to Posco Energy as part of the recent settlement agreement.
The company is chronically suffering from a high order backlog which stood at $1.284 billion as of July 31, 2022, compared to $1.299 billion as of July 31, 2021. It remains sufficiently high compared to the industry average as FuelCell struggles to execute its reserved projects.
This is mainly due to technical issues with its fuel cell modules and mismanagement. To address these issues, the company plans to increase spending in fiscal 2022 by up to $50 million to update existing products, fund research and development, and increase production capacity.
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Third-quarter results also revealed continued dilution in equities that is hurting investor optimism. The company massively diluted its stock to fund its operation. Some shareholders don’t see this as a positive sign because it diminishes their ownership and stake in the company.
What is troubling is that the company is doing this to finance its operations as it does not have the ability to generate revenue from its core business.
Overall, the quarterly results show a slightly improved picture in terms of revenue growth, but a still poor performance in terms of profit generation and execution of existing projects. An investment in FuelCell Energy stock is considered very risky by the market and could be avoided for now until we see improving fundamentals.