Penny stock Helium One Global (LSE: HE1) has been a popular buy within the UK investment community lately. In recent weeks, it has been among the most bought stocks on Hargreaves Lansdown.
Is it worth taking a punt on this 1.1p stock and buying it for my ISA? Let’s discuss.
High up on the risk spectrum
Penny stocks are typically risky investments. Any stock that has a market cap below £100m (a ‘penny stock’ has a price of less than £1 and a market cap below £100m), is likely to be volatile due to the fact that large trades can move the share price.
That said, risk levels can vary significantly with these stocks. There are those that have revenues and profits, and are a bit lower on the risk spectrum. Then, there are those with no (or very small) revenues and zero profits that are high up on the risk spectrum.
Helium One falls into the latter category. Currently, this company – which is engaged in helium exploration in Tanzania – has no material revenues (its last half-year report for the six-month period to the end of December 2023 showed revenue of just $1,440).
Meanwhile, it’s losing a ton of money. For the financial year ended 30 June 2023 (we don’t have the most recent annual accounts yet), the company generated an operating loss of around $3.4m.
So, it’s very much a high-risk stock. When companies aren’t making any money, they often have to raise more capital from investors and this can send the share price down sharply.
Potential for big gains
Of course, high-risk investments can sometimes generate incredible returns. After all, risk and reward are directly correlated.
And in this case, there are certainly a few reasons to be bullish. In an update posted on 17 September, Helium One’s CEO Lorna Blaisse noted that over the last 12 months, the company has made a helium discovery, completed a detailed feasibility study, established a commercial development plan, and successfully applied for a mining licence with the Mining Commission of the Tanzanian Government. So, the group appears to be making progress towards its goal of becoming a producer of helium (which is used in a range of industries).
Meanwhile, the company recently entered into an agreement to acquire a 50% interest in ASX-listed Blue Star Helium‘s Galactica-Pegasus project in Colorado. Blaisse noted in the recent update that the company is looking forward to completing the acquisition and starting the drilling phase of this project.
Should I buy?
Weighing everything up though, I feel the risks outweigh the potential rewards here. The stock could rise if there’s some good news but it could also fall significantly (50%+) if there are operational setbacks or the company has to raise more capital to stay afloat.
Why would I take the risk on this share when there are lots of other penny stocks in the market with far more favourable risk/reward set-ups?
