The shares of penny stock Helium One Global (LSE:HE1) have been on a rollercoaster ride this year. Since the start of 2024, they’ve skyrocketed over 300%! Yet, zooming out to the last 12 months, they’re still down a massive 80%.
Seeing this sort of volatility from micro-cap companies is hardly anything new. This segment of the stock market is notorious for enormous price fluctuations, and Helium One’s clearly no exception. So what’s going on with this penny stock? And is now a good time to start buying?
The power of expectations
Despite what its £63m market capitalisation would suggest, Helium One doesn’t actually make any money yet. The firm’s engaged with helium exploration within Tanzania.
Despite being one of the most abundant elements in the universe, helium gas is difficult to find naturally concentrated in a single location. As such, it’s quite a valuable substance, given its usefulness in the healthcare and aerospace industries.
So it isn’t hard to understand why investors have gotten quite excited at the prospect of an enormous helium deposit within Helium One’s exploration zone. It’s been a bit of a bumpy ride, but following a recent update from management in September, the group’s efforts are seemingly starting to pay off.
A feasibility study has been completed, a commercial development plan formalised, and mining license requests submitted. It seems Helium One’s on the verge of finally generating some revenue in the near future, explaining the recent surge in valuation.
Yet, given that the group’s now closer than ever to reaching production, why are shares still trading at a massive discount compared to a year ago?
A buying opportunity or a trap?
There’s no denying that Helium One’s made some excellent progress. Yet, there’s still a long road ahead. Even after revenue finally starts to flow, it could be a long time before any profits start to follow. In the meantime, the company’s short on cash.
Several rounds of fundraising have already taken place. Consequently, a massive amount of shareholder dilution has occurred. In June 2023, the company had roughly 820 million shares outstanding. Six months later, this increased to 3.4 billion. And given the cost of developing a mining site, I wouldn’t be surprised to see even more dilution further down the road.
At the same time, with a valuation driven almost entirely by future production expectations, the slightest hiccup or speed bump could also trigger further volatility in the stock price.
All things considered, there’s still enormous risk attached to this business. Failing to keep up with expectations will likely make future fundraising exceptionally challenging. It may even potentially compromise Helium One’s ability to stay afloat. Yet, if it’s successful, the explosive gains from production could more than make up for the volatility.
For my portfolio, the risk’s too high right now. But I’ll be keeping close tabs on this business moving forward.
