2021 has not been too kind to the Powerhouse Energy (LSE:PHE) share price. In fact, since the start of the year, the alternative energy stock is down around 56%. Although it’s worth noting that the 12-month performance is still positive with a 25% return. Last week, the company released its latest interim results, which didn’t do much to stop the falling PHE share price. But is this decline actually a buying opportunity for my portfolio?
Why is the share price tumbling?
I’ve looked at this business before. But as a quick reminder, Powerhouse Energy is a young waste-management enterprise. The firm developed a proprietary chemical recycling process called DMG. This technology converts end-of-life plastics into a hydrogen-rich synthetic gas that can replenish fuel cells. It not only helps tackle pollution but also provides an alternative source of low-cost energy.
Given that the waste-to-energy market is expected to reach $55bn by 2027, I can understand why some investors were quite excited by this company, leading to the explosive PHE share price growth last year. However, while the technology might be promising, the business remains unproven – something that many investors failed to recognise, leading to a runaway valuation.
Powerhouse Energy has begun generating revenue. But its flagship plant, Protos, is still under construction, and will likely remain that way for several years. And it seems shareholder patience simply isn’t that long, leading to a steady decline in the PHE share price.
An explosive growth opportunity?
Despite the high expectations of investors, there are some reasons to be excited. Once Protos is complete, it will be able to convert up to 4.9 million tonnes of plastic each year into 140 Megawatts of electricity. That’s enough to power 250,000 homes. While the firm will be exposed to a single-asset risk, revenue growth will likely be quite explosive and can be used to diversify its portfolio in the future.
Looking at the latest interim results, Powerhouse Energy has around £10.9m of cash on its books, which is more than enough to cover its short-term obligations. In the meantime, it has begun generating a small-but-growing revenue stream of £373,306 by providing engineering services.
Overall, it seems to me that Powerhouse Energy has enough capital to keep itself afloat for now. And if Protos is completed with no unexpected problems or delays, the PHE share price may be set to surge over the long term.
The bottom line
As exciting as the future growth prospects may be, there remain many unknowns. Even when Protos comes on-line, there’s currently limited information to discern how profitable the operation will be. That makes it quite tricky to value.
Personally, I think it’s too soon to add this business to my portfolio. Once more financial and operational data becomes available, I’ll take another look.
