On April 21, 2017, we had an interesting idea that worked out pretty well. Plug Power Inc. (NASDAQ: PLUG) had signed an agreement with Amazon, under which the retailer was buying warrants to buy more than 20% of the company.
Because of its technology. PLUG had been working for Amazon and seemed to have proved that its hydrogen and fuel cell solutions were able to help in doing the work in Amazon’s warehouses faster than other alternatives. The key in the new technology is that the fuel cells last longer as compared to other technologies, like lead acid batteries, and, most importantly, do not require frequent replacements during operations. The deal had made the share price increase astonishingly.
What did we say?
We had a look at the stock valuations of Plug Power Inc. (NASDAQ: PLUG), FuelCell Energy Inc. (NASDAQ: FCEL), and Ballard Power Systems Inc. (NASDAQ: BLDP) and noted that FCEL and BLDP were trading much lower than PLUG. Hence, we noted that the share price difference between these two stocks would diminish in the near future. And it actually did.
In this article, we will show that FCEL is still undervalued by the market. Recent developments in the other companies made their share price increase, but the market forgot to push up FCEL. We will show some financial figures to prove our thesis in this piece.
Let’s briefly check the business model of FCEL for those who are getting to know the company now. FuelCell Energy provides clean solutions for the supply and storage of energy by the use of megawatt-scale fuel cell systems, serving utilities, and industrial and large municipal power users. It is based in Danbury, CT with 580 full time employees working for the company.
Let’s see the most recent development announced by FCEL.
The company seems to be growing through agreements with entities outside the U.S. On September 5, 2017, the company released a new 20 megawatt fuel cell project with Korea Southern Power Company. The company will install a SureSource 3000™ power plant for producing clean energy to support a district heating system. The construction is expected to begin in 2017 and revenues are expected to commence in 2018.
The new partner, Korea Southern Power Company, seems to be a big player in the country. It is Government-owned and operates 9.1 gigawatts of gas and coal-fired power plants, supplying electricity to commercial and residential customers in South Korea.
Additionally, on August 28, 2017, the company noted that NRG Energy Center in Pittsburgh, Pennsylvania, owned by NRG Yield, will have a new fuel cell power plant. In the press release, it was included that the U.S. Department of Energy awarded the contract. We believe that the client was quite satisfied with the project. These were the words of the NRG Energy Center Pittsburgh General Manager, Cliff Blashford:
“This project supports NRG Yield’s focus on identifying and integrating energy solutions that seek to improve efficiency, lower fuel consumption and costs, and reduce our environmental footprint. We’re pleased to participate, and to support Mayor Peduto’s vision of a smarter, cleaner and more innovative energy future for Pittsburgh.” Source
Comparison with competitors
These news didn’t seem to create buying pressure on the stock. At least it was not the same buying pressure seen in the companies that compete with FCEL.
The current valuations of the three companies do not make much sense. It did not matter that different reports compared the businesses. FCEL is, as of today; September 21, 2017, much undervalued as compared to its peers. Using the last 10-Q, we found the following financial figures:
- EV/Revenues FCEL: 2.19x
- EV/Revenues PLUG: 7.91x
- EV/Revenues BLDP: 7.23x
What does it mean?
It means that FCEL is undervalued as compared to the other competitors. For the same amount of capital employed, which is enterprise value (“EV”), FCEL is returning three times more revenues. The share price should increase three times to make the EV/Revenues ratio workout.
Currently trading with a market cap of $105 million, FCEL seems to be an undervalued opportunity. The company is trading at a discount with respect to peers. Its share price is $1.74, while its book value is $2.11. It shows $0.58 per share in cash and its revenue per share is $1.69. We appreciate these financial figures and believe that the market has to pay heed to fully value the company. To us, FCEL looks to be a discount entry opportunity.
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Image courtesy of oncle_john via Flickr
Disclosure: We have no position in FCEL and have not been compensated for this article.