Shares in Helium One Global (LSE: HE1) were the most popular buy on investment platform Hargreaves Lansdown last week. When a £56m-cap minnow is being bought more than heavyweights such as Rolls Royce, Scottish Mortgage Investment Trust, Aviva and Lloyds Bank, I immediately get interested.
Why are investors buying Helium One?
So why such interest? It’s a good question, particularly given the recent performance of the shares.
On 23 August, Helium One’s stock traded for just under 17p. By the end of play on 27 August (last Friday), the share price had tumbled to just over 9p. At one point during the week, the stock was down as low as 6p. That’s only marginally above what Helium One’s shares traded at when they first arrived on the market at the end of 2020.
As is often the case with junior stocks in this sector, with the collapse in price often attributed to a disappointing exploration update. My Foolish colleague Roland Head covered the less-than-ideal news on the firm’s Rukwa project last Thursday.
A fall of 46% in such a short space of time is sobering. So is there anything that attracts me to Helium One shares? Actually, yes.
In short supply
Right now, helium supplies are running low. Yes, that means fewer birthday balloons. However, a far more important use of the element is for cooling magnetic resonance imaging (MRI) machines. These use radio waves and magnetic fields to create internal images of body parts. Through this, medical staff are able to diagnose and monitor conditions. This is clearly vital work. Moreover, the reduction in helium supply couldn’t come at a worse time given the delays caused by Covid-19.
There’s another problem. Helium’s status as an inert gas means it’s also used in the manufacture of semiconductors, helping to prevent any unwanted chemical reactions. Unfortunately, the pandemic has accelerated a shortage of these chips which are now ubiquitous in everyday tech.
And these are just the near-term headwinds. Put it all together and the helium price should remain strong. This could leave HE1 in a sweet spot if it can find and extract enough gas.
Despite all this, it seems clear to me that the stock will likely remain a risky pick as drilling continues. All it takes is a bit of poor weather to halt progress.
On top of this, drilling campaigns are rarely cheap. HE1 has £10m in cash, at least according to management, but I suspect the need for more funding is pretty much nailed on. And capital raises would only serve to dilute any stake I owned.
I also feel the need to question whether all this is, to borrow an expression from billionaire Warren Buffett, beyond “my circle of competence.” Do I possess sufficient knowledge of this (unprofitable) company to give me an edge over other investors?
If not, buying some Helium One shares today would be a speculative punt. That’s fine and it could pay off brilliantly. But it’s not investing.
Helium One has likely made some of its early owners wealthy. There’s a possibility it could still make great money for those investors buying in last week. For me however, there’s simply too much risk involved.
If I were to buy a penny stock, it would almost certainly be more of this one.
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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Hargreaves Lansdown and Lloyds Banking Group. 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.