On Dec. 27, FuelCell Energy (NASDAQ:) announced the start of commercial operations at its 2.8-megawatt fuel cell project at a municipal wastewater facility in Tulare, California. FCEL stock has doubled since.ÃÂ
Frankly, IÃ¢ÂÂm not too familiar with the provider of fuel-cell solutions. However, with a 530% gain over the past three months, I couldnÃ¢ÂÂt help but take a closer look at FuelCell stock.
In early December, take a look at Plug Power (NASDAQ:PLUG) under $3. Now trading 70 cents higher than the $3 mark, I thought IÃ¢ÂÂd figure out which of the two fuel cell companiesÃ¢ÂÂ stocks is the better buy.
Please note, whichever stock I favor by the end of this article, these are both still very speculative investments. I do not recommend holding either of them in anything but a taxable account.ÃÂ
With that little housekeeping aside, here are my two cents on each company and stock.
FCEL Stock Is Ready to Move Higher
The companyÃ¢ÂÂs main product is the , a 1.4-megawatt power solution that provides ultra-low emissions and is extremely quiet. It takes up the equivalent space of a tennis court. ItÃ¢ÂÂs the perfect source of on-site power for wastewater treatment plants, manufacturing facilities and other sites that require a 24/7 power source.
The fuel cell project in California is the companyÃ¢ÂÂs , which is essentially two of the 1.4-megawatt modules combined. Its most significant fuel cell solution is the SureSource 4000, which is capable of producing 3.7 megawatts of ultra-clean power by converting unused fuel in the two 1.4 megawatt modules into electricity.ÃÂ
Even some of its biggest projects take up very little space. ItÃ¢ÂÂs got a 21-unit, 59-megawatt fuel cell park in South Korea that takes up a little more than five acres. That project allows the users of its power solutions more room to carry out their operations.ÃÂ
FuelCellÃ¢ÂÂs New Business Model
The company has moved to an model where it obtains a power purchase agreement (PPA) from a client for a period of 10-20 years. The client pays a fixed rate for the power received each year with an escalation clause to account for inflation. Then the client doesnÃ¢ÂÂt have to come up with the capital to build the power source.ÃÂ
In the meantime, FuelCell can sell the project to an investor, who takes over the PPA, or it can hang on to the project and continue to generate revenue from the PPA for its coffers. The company began selling these stationary fuel cell power plants in 2003.ÃÂ
It finished the third quarter with . Through the first nine months of 2019, its revenues were $49.7 million. Revenue was 31% less than in the same period a year ago.ÃÂ
However, because of the change in its business model, it generated a gross margin of 4.3%, 160 basis points higher than a year earlier.ÃÂ ÃÂ
Long term, its diversified revenue streams will generate profits for shareholders. The need for clean and affordable power isnÃ¢ÂÂt going away.ÃÂ
Plug Power Has a Bigger Market Cap
The most appealing part of Plug Power stock is that itÃ¢ÂÂs incredibly undervalued should the company hit its 2024 revenue target of $1 billion. ItÃ¢ÂÂs why I suggested speculative investors buy its stock under $3.
By comparison, Plug Power has trailing 12-month revenues of , almost three times Fuel CellÃ¢ÂÂs trailing 12-month revenues. Both, however, are losing money on a GAAP basis.ÃÂ
As InvestorPlaceÃ¢ÂÂs Luke Lango suggested in December, PLUGÃ¢ÂÂs stock price fell off a cliff after to investors at $2.75 a share, well below $4 where it was trading at the end of November.
The company remains an excellent speculative bet on hydrogen fuel cell technology (HFC), becoming a go-to fuel source for car companies transitioning from fossil fuel to alternative fuel sources such as hydrogen.ÃÂ
ItÃ¢ÂÂs for this reason Lango sees PLUG possibly hitting $8 over the next several years, based on the $30-billion opportunity that already exists for fueling forklifts around the world. Add in automobiles, and itÃ¢ÂÂs easy to see why heÃ¢ÂÂs excited about Plug PowerÃ¢ÂÂs potential.
If you can handle the volatility, itÃ¢ÂÂs hard to argue with his logic.ÃÂ
In 2008, when Plug Power CEO Andy Marsh took over, the company from fuel cell research and development to selling HFCs for forklifts. Now, he wants to take it beyond the material handling industry.ÃÂ
Meanwhile, as CEO in August. He is tasked with continuing the companyÃ¢ÂÂs transformation and delivering on its $2.1-billion backlog.ÃÂ
Few, who has more than 30 years experience working for Fortune 500 companies, joined the companyÃ¢ÂÂs board in November 2018. He is very aware of FuelCellÃ¢ÂÂs strengths, weaknesses, opportunities and threats.ÃÂ
If youÃ¢ÂÂre a speculative investor and can afford to lose your entire bet, IÃ¢ÂÂd bet on both of these stocks. The upside potential is tremendous.ÃÂ ÃÂ
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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