From some perspectives, fuel cell technologist AFC Energy (LSE: AFC) looks like an absolute dog of a share. Trading as a penny stock, it has lost a third of its value this year. It is down 85% from its 2021 highs.
On the other hand, the renewable energy share has still more than doubled in the past five years.
Having fallen so far in the past couple of years, could the AFC Energy share price get back anywhere like where it was?
Last month the company announced that its ammonia cracker technology successfully achieved 99.99% hydrogen from single reactor testing, with the results being independently tested by the National Physical Laboratory.
As the company explained, the results “highlight the ability of AFC Energy’s new ammonia cracking technology to deliver fuel cell grade hydrogen on a modular, scalable basis”. That could have potentially huge business implications, depending on how successfully the technology is commercialised.
Last month also saw Speedy Hire confirm that its intention to form a joint venture with AFC “remains on track”. The hire company added it expects that to offer its customers “exciting opportunities”.
Need to prove the business model
If the Speedy Hire tie-up is finalised and produces substantial business results, that could be a boon for AFC. It will give it a route to market and also allow it to prove the commercial potential of its technology at scale.
That can be important for a small company, and I certainly see AFC that way. Revenue from customer contracts fell in the first half and sat at just £200,000. Despite being a penny stock, AFC still commands a market capitalisation of £95m.
I think that revenue could surge, for example if the Speedy Hire partnership produces decent results. Not only is the potential market opportunity high, but the baseline for AFC’s revenue is so low that even a relatively modest number of sales could make a meaningful difference to it.
That might not solve the company’s profitability challenges, however.
The first half alone saw a £6.3m post-tax loss. But much bigger revenues could at least help the company spread its fixed costs more broadly, something that could ultimately bring it closer to turning a profit. If that happens, I think the shares could soar.
No rush to invest
There is a lot of work to do between here and there, though. AFC has a history of large losses and small revenues. It continues to burn cash, and I see a risk that that could lead to further shareholder dilution at some point.
Commercialisation can be challenging, and AFC is far from the only company working to try and build a business in its field.
For me there are too many ifs and what ifs to make AFC investable for now. I would rather wait to see how the business develops before considering buying the shares.