Think Versarien’s share price is a bargain? Read this now

Versarien plc (LON: VRS) looks as if it can do no wrong. But before you buy the shares, you need to consider these factors, says Rupert Hargreaves.

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Advanced materials engineering group and graphene play Versarien (LSE: VRS) has become one of the market’s most sought-after stocks over the past 12 months.

There’s been no shortage of positive news from the company so far this year. Over the last couple of months, the enterprise has revealed agreements with audio equipment firm Media Devil, and an unnamed global sports and fashion goods manufacturer. On top of these two significant deals, more recently it has begun collaborating with South Korean-based AXIA Materials, on developing “smart graphene devices” for the buildings and electric vehicles market.

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Today, the company has announced yet another collaboration agreement with Advanced Insulation Limited, a leading supplier of advanced construction materials for the oil and gas industry. The first project the partners are planning to work on is incorporating Versarien’s proprietary graphene technology “into sub-sea insulation materials, with a view to improving their tear resistance and reducing water absorption.

Blue sky potential 

As it signs deal after deal, Versarien is proving to be a hugely rewarding investment for those early to the party. Over the past 12 months, the stock has added nearly 1,000%. Year-to-date, it has gained a more modest, but still impressive, 152%.

And some analysts believe that this could be just the beginning of Versarien’s growth. The wave of deals the company has inked seems to justify this opinion and management certainly seems optimistic about the future. According to CEO Neill Ricketts, there now exists a “global demand” for Versarien’s products.

However, while I cannot deny that Versarien looks to be one of the best ways to invest in the graphene business, I’m sceptical that it will be plain sailing for the firm from here on out. Agreements are one thing, but getting cold, hard cash in the bank is something different altogether. It could be some time before Versarien becomes a sustainable business. In the meantime, finding the money to keep the lights will be a primary concern for the business.

Investor support 

So far, investors have been more than happy to support the group through these early stages. A recent fundraising on the PrimaryBid platform attracted far more interest than management was initially expecting. Even after increasing the size of the offer, it was still oversubscribed and closed early having raised a total of £5.2m.

As long as investor sentiment towards the business remains this positive, I see no reason to believe that Versarien will run into any problems. However, market sentiment can be fickle, and the number of companies that have collapsed after running out of money and losing investor support is frighteningly high.

With this being the case, I’m not ready to go all in just yet. I’m cautiously optimistic about the outlook for Versarien, but I’d like to see self-sustainability before rating it a ‘buy’.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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