It has been a wild past few weeks for the Helium One (LSE:HE1) share price. The stock was virtually worthless, trading at 0.19p in January. Yet thanks to some good news, a rally has been sparked in this penny stock.
The question from here for potential investors like myself is if this has the legs to keep going higher.
The long story short
This isn’t the first time I’ve covered Helium One. I wrote about the stock last September, when another retail investor driven rally pushed the stock higher in much the same way as we’ve seen again this year.
Last time around the good news was that it had acquired a drilling rig. This is a rather crucial element for a gas exploration company! After all, it has exploration permits that have shown strong helium concentrations are present at different locations.
With a lack of meaningful progress over recent months, the stock has fallen lower. After all, I believe a lot of the movement in the stock is driven purely by speculative buyers, hoping to make a quick buck. It’s down 60% over a one year timeframe.
However, investors have been piling back in recently, thanks to news at the Itumbula West-1 well in the Rukwa Rift Basin in Tanzania. Testing revealed high helium concentrations of up to 4.7%, which could make it one of the largest sources of helium globally.
Look at the numbers
Naturally, this is a milestone discovery for the business and one that could be very profitable further down the line. Yet we can’t get ahead of ourselves just yet.
The business raised £4.7m from the equity market last week to secure more funding. This should help to pursue the project and take things further.
This is crucial because the 2023 annual report showed income of less than £40k. With millions being spent on everything from wages to research, the business is heavily loss-making. Clearly, the potential for large profits is there, should the firm be able to commercially extract and distribute helium from different projects.
Yet until then, it will have to keep raising money as it burns through cash.
Further points to consider
The current share price jump does have merit to it, if an investor believes that the Itumbula West-1 well is a true money-maker. These investors will likely hold the stock for the long-term potential. Yet I believe that a lot of the buying right now is from short-term traders who are simply looking to hold the stock for a couple of weeks.
There’s nothing wrong with this at all. But it can distort the fair value of the stock. If we don’t get any new positive news in the coming months, I could see the stock plummeting again, like it did last year. This might not be anything to do with the company, but rather impatient investors moving on to the next hot stock.
This ultimately means that it’s very tricky and risky for me to get involved, due to the unpredictable and wild swings. Last time I wrote about the stock I concluded that this isn’t a stock for the faint hearted. I reiterate that view today!
