FuelCell Energy vs. Plug Power: Which Stock is a Better Buy?
FuelCell Energy (FCEL) and Plug Power (PLUG) are two of the most interesting companies in the market. Both FCEL and PLUG are ways to play the growing “hydrogen economy”. In recent months, they’ve attracted a lot of interest due to strength in alternative energy and electric vehicle stocks.
While the S&P 500 has a YTD gain of 7.8%, the KraneShares Electric Vehicles and Future Mobility Index (KARS) has a YTD gain of 32%, and the iShares Global Clean Energy ETF (ICLN) is up 81% YTD.
Some of the reasons for this outperformance are advances in technology leading to lower costs while boosting capacity, countries all over the world are investing in green energy to reduce emissions and pollution, and improvements in batteries are making it cheaper to store and transport power.
Another recent catalyst has been the strong polling for former Vice-President Joe Biden and Senate Democrats who are proposing an ambitious plan to invest $2 trillion in green energy via subsidies and tax credits.
PLUG’s stock has been benefiting from this tailwind as it has a YTD gain of 483%. In contrast, FCEL has been essentially flat with a 4% gain.
Earlier this year, we saw a similar dynamic in the electric car sector, where Tesla (TSLA) was making new highs, yet its peers like NIO (NIO), Workhorse (WKHS), or Kandi Technologies (KNDI) were lagging. As time passed, these stocks eventually started moving higher and have outperformed TSLA on a shorter time frame.
Will FCEL pull off a similar feat? Or, is it destined to continue underperforming in the coming months? Let’s find out.
Business Models
First, let’s take a look at each company’s business models and major products. PLUG develops hydrogen fuel cells that it hopes will replace batteries in electric vehicles. Currently, the company uses them in its forklifts which it sells to companies for use in warehouses.
PLUG claims its forklifts are lighter, more energy efficient, and stronger than traditional forklifts. It has a 1% market share in a $30 billion industry. Many investors also believe that its technology will be licensed for use in other areas.
FCEL manufactures stationary fuel cell power plants for distributed power generation that typically use natural gas or biofuels. It also operates and maintains these fuel cells, and its major customers are utilities. For utilities, the fuel cells help generate clean energy and can be used when there is increased power demand, carbon capture, and long-term energy storage.
The company has a large total addressable market as utilities are beginning to adopt distributed generation solutions, carbon capture, and hydrogen-based energy storage solutions. Currently, it has $1.3 billion in backlogs and is working on 50 megawatts worth of projects. Analysts believe the global market for these products is $170 billion.
Recent Developments
For most of the year, FCEL’s stock has traded between $1.5 and $3, although it did fall to $1 during the coronavirus crash in March. However, in recent weeks, the stock has had a 35% rally as it was upgraded by JPMorgan (JPM) after it said that FCEL’s valuation is attractive compared to its peers, and the stock should become profitable within the next couple of years.
FCEL added to these gains when it was selected by the Department of Energy for an $8 million grant to develop an electrolysis platform for producing hydrogen. In its last quarter, FCEL slightly topped expectations with revenue of $18.8 million vs $16.6 million consensus. Earnings were below expectations with a loss of $0.07 per share, while analysts were expecting a loss of $0.06 per share.
While those buying on FCEL are betting on a turnaround, PLUG’s stock has pulled off a massive turnaround. From its March lows, PLUG is 637% higher.
PLUG has been increasing sales in recent quarters, announcing new products, and striking partnerships that have been driving the stock price higher. It would also be a major beneficiary under Biden’s energy plan which would bring down the cost of PLUG’s products.
PLUG is one of the leading companies in the hydrogen economy which Bank of America believes will be an $11 trillion opportunity by 2050. It’s also been successful in increasing the sales of its hydrogen-powered forklifts to companies like Amazon (AMZN) and Walmart (WMT).
On its own, this is a growing and successful business, but it’s also an application and opportunity to show off the benefits of hydrogen power. Many believe that for heavy usage and long-range situations, hydrogen power is superior. It’s developing hydrogen engines for trucks, delivery vans, and even data centers that are zero-emission but provide more power and life than batteries.
Valuation
Both PLUG and FCEL are not profitable, so the best way to value them is by looking at their price to sales, margins, and growth rates.
PLUG has a price-to-sales ratio of 26, and it’s increasing sales by 18%. The company is slowly moving towards profitability as it is increasing earnings by 20% next year and projecting earnings growth averaging 25% over the next five years.
FCEL has a price-to-sales ratio of 11. In its last quarter, it actually had revenue decline by 18%. One caveat is that the company’s revenue is bumpy due to it making large sales to utilities. Next year, it expects to increase earnings by 80% and average 15% earnings growth annually over the next five years.
POWR Ratings
PLUG’s POWR Ratings are quite strong. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. Among the 58 stocks in the Industrial – Equipment industry, it’s ranked #6.
In contrast, FCEL’s POWR Ratings are not as strong. It has an overall rating of Neutral” with a “D” for Trade Grade and Peer Grade, a “C” for Buy & Hold Grade, and a “B” for Industry Rank. Among the Industrial – Equipment industry, it’s ranked 41st out of 58th.
Verdict
In the short-term, PLUG is certainly the better stock. It has momentum, a product that has gained traction, and it’s aggressively moving into bigger markets by building hydrogen engines for trucks and delivery vehicles. If they can successfully demonstrate that hydrogen is better than batteries for certain vehicles, then it’s stock will continue moving higher.
Until FCEL can start demonstrating consistent growth, it should be treated as a trading vehicle rather than an investment. However, investors should keep FCEL on their radar, as it’s attempting to solve a major problem for utilities that could result in major earnings growth down the road.
PLUG shares rose $0.54 (+2.93%) in premarket trading Monday. Year-to-date, PLUG has gained 500.32%, versus a 10.17% rise in the benchmark S&P 500 index during the same period.
Author: Jaimini Desai