Penny stock Powerhouse Group (LSE:PHE) is one of a number of firms in the burgeoning green energy space.
Recently, there has been a huge impetus on cutting carbon emissions and looking at green energy alternatives.
Should I look to get in early on this potentially lucrative space by adding cheap shares to my holdings? Let’s take a closer look.
A dirt-cheap penny stock
For a bit of context, Powerhouse designs and develops clean energy recovery technology. It enables the disposal of waste streams and re-using this waste by converting to gas to be utilised in other areas. One of its prominent products, its Distributed Modular Generation platform, allows the regeneration of plastic to power and hydrogen.
I find it rare to come across established businesses in the penny stock category that actually trade for a penny. Well, in Powerhouse’s case, that is true. As I write, the shares are trading for 1p. Such is the volatility of small-cap stocks, the shares have fallen since this time last year when they were trading for 5p. The stock market correction and macroeconomic factors won’t have helped.
The bull case
So what are the potential upsides to me buying the shares for my holdings? Well first of all, the waste-to-energy market is currently lucrative and expected to grow. It is estimated that the sector is worth over $30bn today and is set to nearly double in the next five years. Powerhouse could be ready to reap the rewards of such growth, especially with its already established current technology.
Green energy and alternatives to traditional fuels are high on the agenda of governments worldwide. Many directives to cut emissions and produce alternatives that do less harm to the environment are in place and gaining traction. Powerhouse could be primed to benefit from this action, which could boost performance and returns in the long term.
An example I found of Powerhouse’s capability is its Protos project in Cheshire, which will be set to power 250,000 homes from 2024. Powerhouse continues to develop its technology and partner up with other businesses to create similar projects.
A penny stock with risks and my verdict
Despite my bullish stance on the market as a whole, and Powerhouse’s current projects, there could be credible headwinds ahead. There are still construction hurdles to overcome to successfully build projects like Protos.
Macroeconomic headwinds such as rising inflation, rising costs of raw materials, and the supply chain crisis could derail progress. Costs could spiral and there may be delays. This could have a material impact on investor sentiment and returns.
From a risk-to-reward perspective, I would be happy to buy a small number of shares at just 1p per share. My investment strategy has always been to buy and hold for the long term and I would adopt that approach here. If Powerhouse shares fell or did not provide returns, I would not have lost much of my hard-earned cash.
