Here’s Why FuelCell Energy Stock Dipped More Than Its Peers In July


What happened

Actions of Fuel cell energy (NASDAQ: FCEL) plunged 28.9% in July, according to data provided by S&P Global Market Intelligence. The fall was much higher than the shares of peers Flowering energy or Connect the power, which fell by around 19% and 20%, respectively.

So what

FuelCell Energy’s disappointing first quarter performance contributed to a 20% drop in its stock in the first half of this year. The stock continued to decline in July. On July 12, FuelCell Energy announced that it had won its case against Posco Energy. Posco Energy is a South Korean energy company that FuelCell partnered with for almost eight years before things started to escalate between the two. FuelCell felt that Posco did not offer it many new projects. Instead, Posco Energy split its own fuel cell business into a new entity in 2019, which FuelCell says caused misuse of its intellectual property. Since then, the two companies have been arguing in court.

Image source: Getty Images.

In a recent victory, the court rejected Posco Energy’s request to inspect FuelCell Energy’s books and records. While this is indeed positive news, the likely reason the stock fell is because the announcement reminded investors of the other lawsuits still pending against the company. This was the seventh legal action initiated by Posco against FuelCell Energy. Whatever the outcome, such litigation adds to a company’s legal costs. This additional risk after a poor quarterly performance was enough for investors to flee the stock FuelCell Energy.

Now what

Fuel cell stocks have generally seen some correction this year after their dramatic rise in 2020. Investors seem to be focused on the risks associated with these stocks, making their valuations look elevated. The dismal revenue growth of FuelCell Energy and the ongoing litigation with Posco Energy added to investor concerns. The stock will likely continue to underperform its peers until the company quells investor concerns about revenue growth and legal battles.

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Rekha Khandelwal has no position in the mentioned stocks. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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