When it comes to penny stocks, the risks are high, but the rewards can be even higher. Typically, these stocks are characterised by having a market-cap below £100m and a share price below £1. One of these came across my radar this week catching my attention due to the nature of operations and share price pop. Here’s the lowdown.
On the rise
I’m talking about Quadrise (LSE:QED). The business is a UK-based energy technology company focused on developing and commercialising alternative fuel solutions. When we’re talking about alternative fuel, we’re primarily looking at low-cost, low-emission alternatives to heavy fuel oil. Some of the sectors that would most benefit from this are marine shipping, power generation, and other industrial areas. In short, this is a huge target market.
The business makes money mainly by licensing out its proprietary technology to refineries and power plants. It’s not an exploration firm or direct producer, but it has these types of companies partnering with it to use its technology. Sometimes, deals are structured in such a way that it gets a margin on the end fuel sales.
Good momentum building
The share price has rocketed 170% in the last year, currently trading at 3.64p. Most of this jump came late last year following big news releases. One was an agreement with Sparkle Power, a thermal power producer in Panama, to supply a manufacturing unit at the power plant. This was the first trial on that specific engine type, giving investors optimism that the tech can be used in a much broader range.
At the start of this year, it also announced an agreement with the European Climate Agency (CINEA) to help work on reducing greenhouse gas emissions and energy efficiency for marine vessels. The potential for grants, contacts and new deals from this is large.
I believe more deals like these will put the business in a really strong position to grow in coming years. As the world pivots to renewable energy, Quadrise has an advantage in providing an alternative for key sectors that simply can’t flip to using something like wind or solar energy.
Risks to note
Like most penny stocks, the main risk I see for Quadrise is the volatility in the share price. It hit 8p at the start of this year. So even though it’s up 170% in a year, some investors that bought at the top would be down over 50% right now. Given the low market-cap, even relatively small market orders can cause a large stock reaction.
Another concern is that Quadrise might get bought out by a larger company. Even though it has patents, big producers or refiners could find ways to tweak and replicate the technology with a more extensive research and development budget.
Even with these concerns, I think it’s a stock worthy of consideration for investors who are comfortable with the risk of owning penny stocks.
