Why I’d buy penny stock AFC Energy with £1k today

Rupert Hargreaves explains why he believes this penny stock is one of the best to buy in the renewable energy space.

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Penny stock AFC Energy (LSE: AFC) has been on my watchlist for a long time. I think the company is one of the most promising operations in the hydrogen space.

Unlike other businesses, which are making a lot of progress developing ideas in technology, AFC has its tech out there on the market, and it is generating a lot of press.

This does not guarantee that the business will be able to outperform its peers. Neither does it guarantee that the technology is better than anything else out there on the market.

However, the publicity the company is generating with its initiatives, such as the partnership with the Extreme E racing series, should help increase awareness of the band, which could ultimately lead to additional sales.

And the business has more partnerships in the works.

Promising stock

Over the past couple of months, AFC has noted a significant increase in enquiries from customers in the construction sector. The government is withdrawing the red fuel subsidy for the construction sector, which will dramatically increase fuel costs for the industry.

The aim of this strategy is to reduce diesel consumption in the construction industry. Companies are now looking for alternative ways of generating energy.

AFC’s hydrogen fuel cell technology is one option.

It has been working with engineering contractor Keltbray for months to assess the capabilities of its technology. The contractor has now placed an order. It will be deployed at one of Keltbray’s construction sites, likely in London in the second quarter. Further deployments could follow later in the year.

This could be the first of many agreements in the sector for AFC. The arrangement between Keltbray and AFC could be instrumental in proving to the rest of the construction sector that hydrogen is a suitable alternative to hydrocarbon fuels.

The agreement will also help AFC commercialise its technology. This should help push down costs for the penny stock, which could ultimately open to new customers. City analysts are excited about the potential of this agreement.

One group of analysts recently put a price target of 195p on the stock, indicating an upside of more than 500%, based on this deal.

AFC Energy outlook

Of course, there is no guarantee the stock will hit this price target. There is a lot that could go wrong for the business in the meantime. Competition in the sector is also hotting up. AFC has the edge over some of its peers today, but the penny stock cannot take its position for granted. A competitor could come along to grab market share at any moment.

Despite this risk, I am excited by the company’s potential. That is why I would buy the penny stock for my portfolio today with an investment of £1k. As the group pushes forward with its partnerships, I reckon further sales growth is on the cards.

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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