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Is the AFC Energy share price set for a new bull run?

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I have my eye on a few growth stocks that I’m considering for my next investment, and AFC Energy (LSE: AFC) is one of them. In typical growth stock fashion, the share price soared to a peak of 94.4p back in December 2020. But since then, the AFC Energy share price has fallen.

From that 52-week high, the shares have declined by 50%. So that’s a significant drop for those unlucky enough to get in at the peak. But looking at the bigger picture, AFC Energy is still up 150% over the past 12 months, thanks to that big December spike.

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The question I’m asking myself now is whether the AFC share price is set for a second wind and a new upwards surge. Or will the slump continue downward? I’ve examined many a growth stock at this kind of juncture over the years. And it can often be a toss-up as to which way they go next.

Renewable energy

In AFC’s case, it’s all about the future of green energy, and the company’s hydrogen fuel cell development. It’s not yet clear whether battery or fuel cell technology will come to dominate the electric transport business. But there are clear advantages to both, and I can see prospects for both technologies.

The renewable energy movement should hopefully give the AFC Energy share price a long-term boost. But what’s happening in the short term? I’m wondering if we might just be in the midst of a spell of attention drawing back to nasty, dirty, oily energy stocks.

We just need to look at the BP share price to see what’s happening there. While AFC Energy shares have lost 20% over the past month, BP has gained 20%. So maybe sentiment really is moving away from the green energy idealism back to the hard fact that we’ll still be using oil for a good few years yet.

Contrarian time

If that is the case, I can’t help thinking this might be a good time for contrarian energy investors to get back in.

AFC has only just started recording revenue, and it’s a good way from any sustainable profits. But recent developments indicate a growing interest in its technology. The company has already told us it has a number of prospective customers lining up for a closer look.

And in September, AFC announced a partnership with Urban-Air Port. The tie-up should see hydrogen fuel cells being deployed starting in 2022. Right now, financial details of the arrangement are thin on the ground. So we’re pretty much in the dark when it comes to trying to put a rational valuation on the company.

AFC Energy share price valuation

That, I think, is by far the biggest risk to the AFC Energy share price. Growth shares can sometimes remain buoyant for a surprising time while a company edges towards profitability. But right now, we don’t even have a hint of a smell of a quantification of AFC’s sustainable profit potential.

That’s why I’m staying out, for now. I do think I see a company with attractive prospects here. But until I can put a valuation on those prospects, I will avoid the risk.

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Alan Oscroft 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.

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