FuelCell Energy (NASDAQ:FCEL), which is a top developer of hydrogen-fuel systems, has been one of Wall Street’s darlings lately. Since late October, FCEL stock has surged from $2 to $23. Its market capitalization is now $7.4 billion.

Of course, the overall fuel-cell sector has been on fire. Just look at other players in the space like Plug Power (NASDAQ:PLUG), Ballard Power Systems (NASDAQ:BLDP) and Bloom Energy (NYSE:BE). Wall Street thinks that the fuel-cell market will be big enough for multiple large companies.

So last week, we got the latest details on FuelCell’s performance, as the company reported its fourth-quarter results. Its earnings were actually mixed. While its revenue shot up 54% year-over-year to $17 million, its sales were up only about 17% for all of 2020.

That’s an indication of the choppiness of its business, which relies on large contracts. The company’s backlog fell 2.5% last year to $1.29 billion.

FuelCell also continues to post substantial losses. For 2020, it was  $89 million in the red.

The company has certainly aggressively expanded its infrastructure. Here are a few of its Q4 highlights:

• It completed a 2.8 megawatt (MW) biogas power platform in Tulare, California.
• FuelCell has nearly finished  a 8.8 MW power platform for the U.S. Navy in Groton, Connecticut and a wastewater treatment facility in San Bernardino, California.
• The firm started building a 24.5 MW project in Yaphank, New York and Derby, Connecticut. The project includes a system for Toyota (NYSE:TM).

In the meantime, the company has been working hard to raise capital. It has received several grants from the U.S. Department of Energy. FuelCell also raised $156.3 million with a new secondary  offering of its shares.

Industry Transformation

The long-term outlook of  hydrogen and other forms of alternative energy does appear to be robust. Alternative energy is getting more powerful and cost-effective. Of course, it’s also cleaner. Hydrogen is particularly clean when it’s produced with electricity generated by solar and/or wind energy. Such hydrogen is also renewable.

The Biden administration is certainly  positive for the sector. Already it has rejoined the Paris Agreement in an effort to fight climate change. That move  will provided a boost to the hydrogen industry.

According to FuelCell CEO Jason Few: “Based on the initial policy objectives outlined by the incoming White House administration, we expect clean energy and climate policies in the U.S. to begin to match the pace of advancement seen in other markets such as Europe and Asia, and to be favorable toward development of the growing hydrogen economy.”

However, I think investors should  temper their expectations. The fact is that the Biden administration’s main priority is the Covid-19 pandemic and dealing with it will involve a great deal of time and substantial resources.

The Democrats also only have the thinnest possible majority in the Senate. As a result, it could be tough for them to muster support for multiple ambitious programs. Besides, in light of the nation’s huge budget deficits and debt, the government may not have enough resources for many such initiatives anyway.

The Bottom Line on FCEL Stock

FuelCell Energy will certainly be a beneficiary of the new energy revolution. But the valuation of its stock is a very real concern.

As a result, many Wall Street analysts are generally bearish on FCEL stock. Take a look, for example, at JP Morgan’s Paul Coster. In a recent report, he downgraded FCEL stock to the equivalent of a “sell” rating, even though he increased his revenue and earnings projections for the company. And he has a $10 price target on the name, so he anticipates a drop of more than 50% from the shares’  current level.

Note that no analyst has a “buy” rating on FCEL stock. As for analysts’ average price target on the shares, it is $13.60.

Of course, Wall Street analysts are far from perfect. But then again, their average outlook on FuelCell is quite negative. And with the shares trading at 67 times the company’s trailing revenue, it will really be tough for the stock to maintain its strong momentum.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling.  He is also the author of courses on topics like the Python language and COBOL.