FuelCell Energy, Inc. (NASDAQ:FCEL) Stock's 27% Dive Might Signal An Opportunity But It Requires Some Scrutiny

To the annoyance of some shareholders, FuelCell Energy, Inc. (NASDAQ:FCEL) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 87% loss during that time.

Since its price has dipped substantially, FuelCell Energy may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for FuelCell Energy

How Has FuelCell Energy Performed Recently?

FuelCell Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on FuelCell Energy will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

FuelCell Energy's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen an excellent 32% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 25% per year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader industry.

In light of this, it's peculiar that FuelCell Energy's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From FuelCell Energy's P/S?

FuelCell Energy's P/S has taken a dip along with its share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at FuelCell Energy's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - FuelCell Energy has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.