Standing out among the Street's worst performers today is Fluence Energy, a utilities - renewable company whose shares slumped -5.8% to a price of $20.68, 36.7% below its average analyst target price of $32.67.
The average analyst rating for the stock is buy. FLNC lagged the S&P 500 index by -6.0% so far today and by -14.0% over the last year, returning 1.0%.
Fluence Energy, Inc., through its subsidiaries, offers energy storage products and solution, services, and artificial intelligence enabled software-as-a-service products for renewables and storage applications in the Americas, the Asia Pacific, Europe, the 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 $-0.6 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for FLNC of -34.5. Based on the company's positive earnings guidance of $1.1, the stock has a forward P/E ratio of 18.8. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US utilities companies is 17.53, 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.
A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.
When we divide Fluence Energy's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 0.52. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!
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 -17.0% and displayed a mean growth rate of -16.6%. These numbers show that the company may not be on the best track.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Fluence Energy's free cash flow, which was $-389065000 as of its most recent 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 $-241185250.0 and they've been growing at an average rate of -33.5%.
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 6.11 -- in other words, the market value of the company exceeds its book value by a factor of more than 6, so the company's assets may be overvalued compared to the average P/B ratio of the Utilities sector, which stands at 1.71 as of the first quarter of 2023.
Since it has a negative P/E ratio, an elevated P/B ratio, and negative cash flows with a downwards trend, Fluence Energy is likely overvalued at today's prices. The company has poor growth indicators because of no PEG ratio and negative and irregular operating margins with a negative growth trend. We hope you enjoyed this overview of FLNC's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
