My top hydrogen share to buy today

This Fool explains why he thinks this hydrogen share has fantastic potential over the next couple of years as the green energy market grows.

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I have written about AFC Energy (LSE: AFC) several times in the past. This company remains my favourite hydrogen share to buy today, considering its technological progress, and growth prospects. 

The company’s results for the year ended October 2021, illustrate the headway the group has made over the past couple of years. 

According to the results, which were published today, the company now has £5m worth of contracted commercial agreements. It received its first commercial revenue from its partnership with the Extreme E Season 1 Championship. This contract has been renewed for 2022. 

It has also signed several other agreements to commercialise its products further and take its hydrogen power generation systems into the mainstream. 

The top hydrogen share to buy

AFC’s contract with Extreme E illustrates what the business is capable of doing. In Extreme E, electric vehicles race on off-terrain courses. These vehicles need charging, and they have been using AFC’s technology. The company has developed a hydrogen-generation facility that uses the sun’s power to create green hydrogen. This can then be used to generate electricity and recharge batteries. 

As well as the electric vehicle market, the group is also targeting the maritime market. And management is looking to deploy the company’s technology across UK construction sites. The organisation reports that following the removal of the red diesel subsidy, demand from the construction sector has increased significantly. 

I think this is one of the best hydrogen shares to buy today because the company’s technology is starting to gain traction. Management believes the firm is in a leading position to replace diesel generators with its technology over the next 10 years. 

Funding required

And the corporation has the funding to do it. Following an oversubscribed placing last year, the outfit ended its 2021 financial year with a net cash balance of £55m. It has also been investing heavily in building out production facilities to meet potential demand. The company lost £10m for the year to the end of October 2021 as spending surged. 

These capital spending requirements illustrate the sort of challenges the firm will have to overcome in the years ahead. AFC will have to spend a lot of money to capture market share, and shareholders might have to foot the bill. If the market does not provide the funds required, the company’s dreams could come crashing back to earth. This is probably the most significant risk hanging over the stock right now. If it runs out of money, the enterprise could fail before it has a chance to grow. 

Despite this risk, AFC remains my favourite hydrogen stock on the market at the moment. It has a tangible product that is attracting consumers’ attention. If management can capitalise on this growth potential over the next few years, I think the group could be a great speculative investment. That is why I would buy the stock for my portfolio today. 

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 assessed. Consider taking independent financial advice.

Rupert Hargreaves 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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