This FTSE 250 stock has tripled in just the past 3 months. What’s going on?

Following a dramatic rise in price, Mark Hartley investigates what’s going on with a lesser-known FTSE 250 share that’s caught the UK market by surprise.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Renewable energies concept collage

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Seeing a big price move on the FTSE 250 index isn’t that unusual. Compared to the FTSE 100, it can be more volatile, since its smaller market-caps are easier to move.

But a three-fold increase in just a few months? That’s pretty rare! And yet, that’s exactly what happened to Ceres Power Holdings (LSE: CWR), the £720m fuel cell technology company that recently joined the index.

The share price is up over 200% in the past three months, rising from around 100p in mid-September to over 300p today! So what’s driving this insane growth and does it present an investment opportunity?  I had to find out.

A power-hungry partnership

Ceres’ recent fortunes have been primarily driven by a significant manufacturing license deal with Weichai Power, a major Chinese power systems developer. This agreement allows Weichai to produce Ceres’ proprietary solid oxide fuel cell (SOFC) technology for stationary power systems, targeting fast-growing markets such as AI data centres, commercial buildings and industrial applications.

The deal not only strengthens and expands an existing partnership but adds a major global manufacturing partner to Ceres’ portfolio.

On top of that, it positions the company to capitalise on a multi-billion-dollar opportunity in clean energy solutions. But the true value of the deal will only be realised in 2026 — a potential reason why investors are scrambling to get a foot in the door early.

Naturally, all this hype comes with some risks that can’t be ignored. The Weichai deal certainly looks good on paper, but Ceres still faces some real challenges.

For starters, its near-term revenue visibility’s unclear, with FY2025 revenues expected to be flat (or declining). This is due to one-off license fees and delays in revenue recognition. The company also operates in a competitive, rapidly evolving clean energy space where technology adoption rates and regulatory policies can impact growth.

So while the new deal promises growth, investors should avoid pricing in unrealised revenue. The company’s valuation is already sky high as a result of this, which could lead to volatility if growth expectations aren’t met.

The bottom line

A 200%+ price gain’s hard to ignore — growth like that doesn’t just materialise from hype alone. But while there’s certainly an exciting development here, it may be a ‘buy the rumour, sell the news’ situation.

Investors should be cautious about the potential of a sharp correction if things don’t pan out as planned. On top of that, there’s broader market risks affecting clean tech stocks, including economic downturns and shifts in government incentives.

Overall, the Weichai deal has been a transformative growth catalyst for Ceres Power but the price now looks overvalued. For investors looking for long-term exposure to what may be a groundbreaking green energy company, it’s worth considering. However, I’d tread carefully and allocate it as a small portion of a larger, diversified portfolio.

Right now, green energy’s facing considerable challenges but I think its long-term prospects remain promising. For those interested, there are other opportunities on the UK market worth looking into.

Mark Hartley 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.

More on Investing Articles

Older couple walking in park
Investing Articles

How much do I need in my ISA for a £1,000 monthly passive income?

Picking high-income stocks in an ISA can be a route to securing long-term passive income. And here's one with a…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Prediction: in 12 months the surging Aviva share price and dividend could turn £10,000 into…

Aviva's share price has beaten the broader FTSE 100 over the last year. But can the financial services giant keep…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Dividend Shares

I love FTSE 100 dividend shares, but do I buy this FTSE 250 loser?

Over the past year, the UK's FTSE 100 has thrashed the once-mighty US S&P 500 index. With value investing back…

Read more »

Investing Articles

How much do you need in an ISA to target a £2,000 monthly second income?

Harvey Jones crunches the numbers to see how much investors need in a Stocks and Shares ISA to generate a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Should investors consider Legal & General shares for passive income?

As many investors are chasing their passive income dreams, our writer Ken Hall evaluates whether Legal & General could help…

Read more »

ISA coins
Investing Articles

How to transform an empty Stocks and Shares ISA into a £15,000 second income

Ben McPoland explains how a UK dividend portfolio can be built from the ground up inside a Stocks and Shares…

Read more »

Investing Articles

I asked ChatGPT if it’s better buy high-yielding UK stocks in an ISA or SIPP and it said…

Harvey Jones loves his SIPP, but he thinks a Stocks and Shares ISA is a pretty good way to invest…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

How much do you need to invest in dividend shares to earn £1,500 a year in passive income?

As the stock market tries to get to grips with AI, could dividend shares offer investors a chance to earn…

Read more »