This FTSE share has tripled in five years. Could it move higher?

The price of this FTSE AIM share has been heading downwards, but is still much higher than five years ago. Is our writer ready to invest?

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Over the past year, AFC Energy (LSE: AFC) has been a dog. After slumping 35%, the AFC Energy share price is in pennies. A five-year timeframe, however, shows a different picture for the FTSE AIM All-Share member.

The shares have increased 221%. That is despite falling over 80% from their 2021 high to the current price.

Clearly, it has been a wild journey.

But might buying now set me up well for the future as the company continues to commercialise its technology?

Forwards movement

The company updated the market yesterday with the news that its latest modular ammonia cracker architecture has achieved better-than-expected operational efficiency. It has hit AFC’s target, a year ahead of schedule.

That gives the firm a strong story when it comes to reconverting ammonia to hydrogen. In countries where there are not low-cost sources of hydrogen, that could make AFC’s product appealing. Basically, ammonia can be shipped to such markets and then converted to hydrogen to produce hydrogen energy using AFC’s cracker.

AFC’s technology has long been promising, which is one reason the renewable energy stock did so well several years ago. This latest news is another step on the road to commercialising it.

Rich valuation

That could be a long road, though, and nobody knows where it might end. The technology has yet to be manufactured and commercialised on a mass scale. Meanwhile, the business could face all sorts of challenges, from competitive pressure to cash burn.

In its interim results, the company reported revenues from customer contracts of £201,000. Not only is that miniscule for a FTSE share that commands a £116m market capitalisation, it is even smaller than in the prior-year period.

The topline performance was weak, but the bottom line looks even more alarming to me. In the six month period covered by its interim results, AFC Energy made a loss of £6.3m.

The business ended the period with around £33m in cash and cash equivalents. That gives it liquidity for now, but at the current rate of cash burn the company may need to raise more money over the next several years, raising a risk of shareholder dilution.

The technology is promising – but sales are small, losses are relatively large and the business model remains unproven.

I therefore think that, even with the AFC Energy share price in pennies, the valuation looks high.

Wait and see

That could change.

If the company ramps up production and commercialisation, its technology could reach a wider audience. That would boost revenues substantially and could also help it move into the black. The shares could move higher in response.

At the moment, though, I think there is a huge amount of work still to be done.

I prefer to invest in a proven business rather than simply a technology. So, for now, I will not be buying shares in AFC Energy.

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.

C Ruane 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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