It has been a rough couple of months for Ceres Power (LSE: CWR). The FTSE 250 firm with pioneering green energy technology has seen its share price collapse 44% during that short period.
Over five years too, the share is down. That half-decade decline has been 32% — but with significant ups and downs along the way. Indeed, the share has tumbled no less than 89% since February 2021.
So could it now be a bargain at its current price?
The answer, in my opinion, is yes… and no. It could be a bargain but it could also turn out to be a value trap even now.
Possible bargain
Let’s start by looking at why Ceres shares may be a bargain. The demand for energy storage is set to grow, with applications from electric vehicles to portable power stations. Ceres has deep experience in this field and has proprietary technology.
After a slow build up, the company’s commercial results now seem to bear out the demand for its technology. This year’s order intake has been the best ever, with over £100m of deals being inked between the start of 2024 and the end of August.
Sales growth but no profits
The concern I have though, is that while order intake has been strong, the FTSE 250 company continues to be heavily lossmaking.
In the first half of the year, the gross profit margin was 80%. That sounds very impressive. But there is a difference between a gross margin and the net margin that is left after a company’s expenses have been deducted. In Ceres’ case, that is a big difference. While the first half produced a gross profit of £23m, the loss for that period was £12.6m.
Now, here again we see a possible reason to be bullish. Yes, £12.6m is a sizeable loss. However, it was less than half of the equivalent loss in the same period last year. That is positive progress even though the company continues to spill red ink.
If revenues can ramp up (and the order book is looking stronger), that could help the company’s economics as fixed costs can be spread over more sales. If that happens to the right level, then the current share price could indeed turn out to be a bargain.
Looking promising, but still risky
Ceres has the wind in its sails when it comes to potential sales growth. It has entered the Indian market, with customer Doosan expecting mass manufacturing using the FSTE 250 firm’s technology to start next year. And a key partnership with a Taiwanese electronics firm seems to be progressing well. That could generate royalty streams in future.
Still, Ceres has a long history of having promising prospects, but continuing to burn money. That is still the case now, albeit the economics are starting to look a bit more favourable than before.
I do see promise here — but feel the commercial model remains unproven. So despite its recent price fall, I will not be buying this stock for now.
