Shares in Versarien (LSE: VRS) are rising again this morning, extending this year’s gains to 128% as investors buy into the company’s growth story.
Versarien is an advanced materials company. The firm acquired an 85% stake in Cambridge Graphene in January and raised £1.5m last month to help scale up the business.
It seems this investment is already paying off. At the end of March, the group announced that the Cambridge Graphene team, supplemented by recently added personnel, is already producing graphene in sample quantities for customers using new equipment purchased with the fundraising proceeds. Further, Versarien is undertaking further testing and commissioning of capital equipment to scale up its graphene manufacturing capability.
A huge new market
The graphene business has attracted plenty of criticism over the past few years. The material is believed to be 200 times stronger than steel with numerous potential applications such as turning seawater into freshwater, improving the efficiency of solar cells and helping toughen up phone screens.
However, this wonder material is proving hard to commercialise, and so far, most investors who have tried to profit from the graphene boom have been left with nothing but losses.
The question is, could Versarien buck this trend? Well, it seems the group’s management is doing everything possible to make sure that this is the case. At the beginning of February, the firm signed heads of terms for a distribution agreement with Lansdowne Chemicals for its recently-launched graphene brand Nanene. This partnership came nearly two months after what Versarien’s management describes as “one of the first significant orders placed in the UK for the supply of high-quality graphene,” which was announced at the end of November.
So it’s clear Versarien is making progress, but the company is still in its early stages of growth. Luckily, the firm’s legacy divisions are generating sales, which means the group has an existing base to grow from.
Last year the legacy divisions reported revenue of £4.4m and this year, management expects revenue to come in slightly below expectations. But compared to the graphene opportunity management is targeting, Versarien’s legacy income is relatively insignificant.
At the end of 2016, the graphene market had a total value of $23.7m, but this market is expected to grow at an annual compound rate of 36.7% through to 2025, giving a final size of $643m. If the market continues to expand at this rate, by 2035 it could be worth a total of $8.4bn.
With such an enormous addressable market emerging, it’s clear how much potential Versarien has. That said, the company does come with its own set of risks. Like all early stage businesses, there’s the risk that management won’t be able to commercialise its graphene product entirely and the company may run out of cash.
Overall, after recent developments, the outlook might look as if it’s improving, but the company still has a huge amount of work to do before it can be considered to be an attractive growth stock.
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Rupert Hargreaves has no position in any 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.