Is the Helium One share price an opportunity not to be missed?

The Helium One share price has soared since its IPO last December. Is there further to rise or is this stock far too speculative right now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Since its IPO in December, the Helium One (LSE: HE1) share price has risen around 450%. The release of its preliminary drilling results has caused recent optimism, and the shares are up over 30% since this moment. But Helium One is still pre-revenue and is therefore extremely speculative. As such, should I be adding this exciting stock to my portfolio or are there still far too many risks?

What does the company do?

The goal of Helium One is simple: to become a high-grade helium producer for the international market. This could prove extremely lucrative. Indeed, helium is an element with a number of useful properties and different applications. For example, it is used in MRI scanners, telescopes and spacecraft. Nonetheless, helium is a finite resource, and its global supply has been decreasing. This means that helium production has become dependent on hydrocarbon exploitation and its price has also risen greatly.

This is where Helium One comes in. The company currently has three project sites in Tanzania and drilling has just started. Although it is still in its early stages, things have looked promising so far. On 21 June, it was announced that drilling mud had 2.2% helium in it at a shallow depth. Although this is not commercially viable, it is extremely promising that the company is sitting on a ton of helium, which could prove very profitable. If this is the case, then the Helium One share price is set to soar.

What are the risks?

As HE1 is only in its exploration stages, there are many risks. For example, the company is currently not generating any revenues, which also means that it is burning cash at a fast rate. Its current annual cash burn is around $2.7m, so it has around 2.5 years left on its cash runway. This may mean that the company will be forced to raise money through issuing debt or more shares. I think the best way to raise money would be issuing shares, yet this would likely have a negative effect on the HE1 share price. Therefore, this is a risk that must be considered.

Furthermore, if future results from the three projects do not live up to expectations, the Helium One share price would be the main loser. At the moment, it is extremely difficult to predict which way these results will go, and therefore, the stock is highly speculative and lacks safety.

Is the Helium One share price a great opportunity?

I am extremely tempted by the Helium One share price and think it could potentially skyrocket in the future. This is because helium is very much in demand, and HE1 is therefore in a high-growth market. In addition, the company’s current projects look extremely promising. Nonetheless, I am incredibly wary of speculative stocks and am not going to buy right now. Instead, I want to see stronger evidence that the company will be able to produce helium and reach profitability at some point.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Stuart Blair has no position in any of the shares 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Could lithium shares make my Stocks and Shares ISA a goldmine?

Our writer is considering buying lithium shares for his Stocks and Shares ISA. Here, he outlines the decision process he…

Read more »

British Pennies on a Pound Note
Investing Articles

Is now a great time to start buying penny shares?

Are stock markets set for a rebound? If they are, there are plenty of penny shares around that might be…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Can the Lloyds dividend survive a recession?

The Lloyds dividend has been growing strongly. But its history is more alarming. Christopher Ruane explains why he sold his…

Read more »

Electric cars charging in station
Investing Articles

I’m buying this under-the-radar income stock with explosive growth potential

Our author thinks he’s found a winning lithium stock that’s flying under the radar. It’s a steady income stock that…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Are Rolls-Royce shares finally about to climb?

Rolls-Royce shares have been falling again. But I can't see that much has changed, and the full-year outlook still appears…

Read more »

Serious puzzled businessman looking at laptop
Investing Articles

When should I sell my Scottish Mortgage shares?

Buying some Scottish Mortgage shares was an easy decision for me. But I've never been any good at knowing when…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

3 top shares for the ongoing stock market recovery

Although messy, I think the stock market recovery is beginning and that's why I'm now buying shares such as these.

Read more »