Those with a penchant for small-cap stocks may have noticed the magnificent share price gains of graphene supplier Versarien (LSE: VRS) over the past couple of weeks.
While agreeing with a Foolish colleague that the market minnow still represents a risky purchase, I think the potential rewards on offer make it one worth taking for those with sufficiently long investment time horizons.
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Before looking at my reasons for this, let’s peruse today’s interim numbers.
Group revenues jumped 167% over the six months to the end of September to a little under £4.4m. Although a lack of profit is to be expected at this stage, pre-tax losses at the advanced engineering materials firm almost halved to £770,000 from £1.47m over the same period in 2016.
Away from the figures, Versarien confirmed that it had seen “significant interest” from original equipment manufacturers (OEMs) for its “few layer graphene non-platelets” (otherwise known as Nanene) over the reporting period. In addition to being awarded two competitive framework tenders to provide its products to the Centre for Process Innovation, Versarien’s Total Carbide business also received its “largest ever order” for parts to be used by “the UK’s largest aero engine manufacturer“.
As positive as all this sounds, it’s the news since the end of the September that’s really got investors salivating. Arguably the most significant announcements have been those relating to collaborations with Israel Aerospace Industries and a leading global consumer goods company to use Nanene in its packaging. Elsewhere, the establishment of a US sales office in Palo Alto (home of Tesla Motors) “to exploit significant opportunities in the region” is another promising development.
Of course, any one set of results from a company are backward-looking and only a snapshot. To really appreciate the investment case for Versarien, you need to see the bigger picture.
Only the beginning
Although the recently-announced collaborations are a huge lure, it’s what might be revealed over the coming weeks that could really put a rocket under the share price. With the company already hinting at further deals being announced before the end of the year (and November’s £2.8m fundraising now allowing it to scale up Nanene production by a factor of 10), I think those taking a position today could still be handsomely rewarded prior to the market closing for the festive break.
Another thing I like about Versarien is the fact that CEO Neill Ricketts also happens to be its largest shareholder. When the person running the company has a significant proportion of his own wealth invested, you can be fairly sure that his interests will be aligned with those of its other owners.
My last reason for backing it is perhaps the most important to its success over the long term; namely, the quality of the graphene it produces. While competitors exist, the AIM-listed company is the only one to have had its product independently approved by the University of Manchester — the home of the miracle material. To my mind, that kind of scientific credibility can’t be bought.
While some share price volatility is perhaps inevitable as traders take profits (and confirmation bias shouldn’t be ignored), the investment case for Versarien is nothing short of compelling, in my view.