FuelCell Energy – High-frequency trading prompts stock surge

FuelCell Energy’s quarterly results weren’t the reason for the year-end price surge from around USD 2 to over USD 11. At times, more than 200 million trades were concluded in one day, which exceeds the total shares outstanding. I believe we’re witnessing the impact of high-frequency or day trades or swarm-like investor activity via, e.g., Robinhood. Right before the rally, Heights Capital Management reported the purchase of 19 million FuelCell shares, giving the private equity firm a 6.7 percent stake in the fuel cell business.

There are rumors that a competitor is interested in acquiring FuelCell [Nasdaq: FCEL]. Pure speculation at this point. The business’s convertible preferred stock with a cumulative 5-percent dividend, highlighted in an earlier article, has meanwhile risen from USD 380 to more than USD 640. While traded infrequently and part of a narrow submarket, the shares should be gradually moving toward USD 1,000 and FuelCell needs to buy them back to lower the high cost associated with the offering – a 5-percent dividend adding up to USD 50 per USD 1,000 nominal value, assuming shares are traded at USD 580. Moreover, the preferred stock can be converted into common stock. FuelCell stated its intention to purchase some of that stock in a recent investor note in connection with J.P. Morgan’s placement of 39.6 million shares for USD 6.50 apiece. FuelCell gets money for around 25 million of them, while 14.7 million were sold by existing stockholders. The last part doesn’t look so good. Even though I can’t be sure about investors’ motives, it seems like some just wanted to make a quick buck.

Orion Energy Partners is now getting back money loaned to FuelCell. The private equity firm did well on options and warrants. But Orion was also the one providing FuelCell with funds when times were tough. Sadly, much of the cash from the capital raise will not remain with the manufacturer. Still, equity replacing debt is a good thing for balance sheet purposes.

Risk warning

Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

Author: Sven Jösting, written December 18th, 2020

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