FuelCell Energy, Inc. (NASDAQ:FCEL) Soars 34% But It's A Story Of Risk Vs Reward
FuelCell Energy, Inc. (NASDAQ:FCEL) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about FuelCell Energy's P/S ratio of 2.5x, since the median price-to-sales (or "P/S") ratio for the Electrical industry in the United States is also close to 2.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for FuelCell Energy
What Does FuelCell Energy's Recent Performance Look Like?
Recent times have been advantageous for FuelCell Energy as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on FuelCell Energy.What Are Revenue Growth Metrics Telling Us About The P/S?
FuelCell Energy's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. As a result, it also grew revenue by 21% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 35% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 16% each year, which is noticeably less attractive.
In light of this, it's curious that FuelCell Energy's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On FuelCell Energy's P/S
FuelCell Energy's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Looking at FuelCell Energy's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Having said that, be aware FuelCell Energy is showing 3 warning signs in our investment analysis, and 1 of those is significant.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.