Shares of Fluence Energy Underperform the Market. What Do the Numbers Tell Us?

Standing out among the Street's worst performers today is Fluence Energy, a renewable utilities company whose shares slumped -4.0% to a price of $25.43, 20.53% below its average analyst target price of $32.0.

The average analyst rating for the stock is buy. FLNC underperformed the S&P 500 index by -5.0% during today's evening session, but outpaced it by 23.0% over the last year with a return of 34.0%.

Fluence Energy, Inc., through its subsidiaries, offers energy storage products and services, and artificial intelligence enabled digital applications for renewables and storage applications in the Americas, Asia Pacific, Europe, Middle-East, and Africa. The company is a utility, providing a public service and subject to extensive regulations. As stocks, utility companies are favored because they generally offer generous dividends, and their price usually demonstrates some resistance to market volatility.

On the other hand, these companies tend to accumulate large amounts of debt in order to fund their massive infrastructure investments, which makes their financial prospects highly sensitive to interest rate changes. Even small increases in interest rates can vastly increase their indebtedness. Another risk facing this sector is how it can adapt to new federal clean energy regulations and a shift towards renewables.

Fluence Energy does not release its trailing 12 month P/E ratio since its earnings per share of $-0.89 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for FLNC of -28.6. Based on the company's positive earnings guidance of $0.29, the stock has a forward P/E ratio of 87.7. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US utilities companies is 22.89, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

One limitation P/E ratios is that they don't tell us to what extent future growth expectations are priced into Fluence Energy market valuation. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. On the other hand, it's possible for companies with high P/E ratios to be fairly valued in terms of their growth expectations.

Dividing Fluence Energy's P/E ratio by its projected 5 year earnings growth rate gives us its Price to Earnings Growth (PEG) ratio of -0.29. Since it's negative, either the company's current P/E ratio or its growth rate is negative -- neither of which is a good sign.

To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, Fluence Energy's operating margins have averaged -23.5% and displayed a mean growth rate of -1.4%. These numbers show that the company may not be on the best track.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Fluence Energy was $-274451000 as of its last annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In FLNC's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-267714000.0 and they've been growing at an average rate of -0.0%.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Fluence energy's P/B ratio is 7.66 -- in other words, the market value of the company exceeds its book value by a factor of more than 7, so the company's assets may be overvalued compared to the average P/B ratio of the Utilities sector, which stands at 1.03 as of the first quarter of 2023.

Fluence Energy is likely overvalued at today's prices because it has a negative P/E ratio, an elevated P/B ratio, and an unconvincing cash flow history with a flat trend. The stock has poor growth indicators because of its consistently poor operating margins with a stable trend, and an inflated PEG ratio. We hope this preliminary analysis will encourage you to do your own research into FLNC's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.