Watch Out for This Up-and-Coming Stock

Some things about FuelCell Energy (NAS: FCEL) have aroused my interest, and I am not just talking about the numbers here.

The clean-fuel power plant manufacturer's bottom line is not yet in the black, but with its third-quarter revenues surging 65% and numbers beating Street estimates, it might be time to take a better look at the company.

Finally, a positive margin
FuelCell's revenues jumped to $31.2 million from $18.9 million year over year as demand for its products grew. But the eye-catching part is that, after years, in fact for the first time (yes, you heard that right) since the company started commercializing its fuel cells, it has finally generated a gross profit. The margin might be very low at 0.4%, but the fact that it has finally crossed the positive mark is what's worth noting.

Though the company's bottom line remained in the red, its losses from operations nevertheless narrowed considerably to $7.4 million from $12.6 million a year ago as a result of its growing top line and lower costs. The company has also reported a record backlog of $230.6 million. This sounds good, as backlogs are an indicator of future business.

Great going
When a company bags an order that's multiple times its total sales, that's definitely an achievement. FuelCell added a feather to its cap when it received a two-year order worth $129 million from steel producer Posco (NYS: PKX) . This order is also one of the reasons for the higher backlog reported by the company.

More important, this order will help FuelCell maintain its production run-rate at 56 MW, up from the 35 MW rate that prevailed in the second quarter.

The Connecticut-based company is trying to gain a stronger foothold in the emerging markets. Posco's order will help FuelCell tap the South Korean market, where a new regulation relating to increased renewable energy production is likely to boost demand for fuel cells once it comes into effect in 2012. FuelCell also announced its expansion in Asia with the sale of fuel cell modules in Indonesia recently.

Is the industry turning around?
FuelCell's big order also gives us a feeling that all is not lost in the fuel cell industry. Higher demand for fuel cells also boosted peer Ballard Power Systems' (NAS: BLDP) second-quarter revenues by 23%.

As environment regulations get stricter, fuel cells will gain ground. Airlines are taking interest in turning toward the cleaner technology, and bigger players like United Technologies (NYS: UTX) and General Electric (NYS: GE) are also getting deeper into the fuel cell business. While all this sounds optimistic for FuelCell, let's not forget the stiff competition it will face from these big companies and others.

The Foolish bottom line
It will be interesting to see how FuelCell maintains the positive gross margins. And if it can earn profits, it will be an interesting stock to watch. Meanwhile, I suggest keeping a tab on its developments. Click here to add it to your stock Watchlist.

At the time thisarticle was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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