Shares in AFC Energy (LSE: AFC) have been running out of juice. The AFC Energy share price has tumbled two-thirds in one year. Could this be an opportunity for me to add the hydrogen energy specialist to my portfolio?
Share price woes
The company’s share price chart is not a thing of beauty.
Over the past 12 months, the shares have fallen 67%. Looking back further though, this is something of a return to what went before. Before the price started its rapid ascent in November 2020, AFC Energy shares were trading within 10% or so of where they are at the moment. Between then and now, they moved a long way up — and a long way back down again.
The reasons for that fall are easy enough to understand. Indeed, I think they are in plain sight in the company’s interim results, which were published yesterday.
Revenue remains tiny – just £276,000 at the interim stage. While that represents an 85% increase on the same period last year, it looks like small beer for a company with a market capitalisation in excess of £150m.
Although revenues grew, so did losses – at a faster rate. They jumped 135% in the first half to stand at £7.8m. This means that, for £1 of revenue the company made in the first half, it lost over £28. That hardly sounds like a compelling business model.
Arguably though, this reflects the fact that AFC is still developing its business. That takes time. On the commercial front, there is good news. For example, the firm received the first commercial order for its S Series liquid cooled fuel cell system. That could be worth up to £4m, which would certainly help to boost revenue. But I also think it is notable that the customer is engineering giant ABB. If a sophisticated customer like that is paying money for an AFC product, I take it as a good sign for the firm’s commercial potential.
AFC is also leasing systems right now to a variety of clients, notably in the construction sector. If they like what they see when using the systems, I would hope that at least some of those leases could turn into future sales.
My move on AFC Energy shares
I think the sales pipeline is showing more promise. I also like the way AFC is making inroads into large-scale markets, as its deal with ABB shows.
But that is not enough to tempt me to buy the shares for my portfolio any time soon. The business remains heavily loss-making. This brings a risk that it will need to boost liquidity and dilute shareholders, as it has done previously. The firm is sitting on £49m of cash, but growing losses could eat into that heavily.
At the moment, AFC Energy lacks a proven business model. Its path to profitability remains unclear. Therefore I will not be buying any shares.