The EQTEC (LSE:EQT) share price has seen impressive growth over the past six months, increasing from 0.48p to 2.18p. And going back further to a year ago, it was trading at just 0.19p.
So, the question is, why has the share price suddenly started rising? And should I consider adding the stock to my portfolio?
The rising EQTEC share price
EQTEC is a clean energy provider. Using its proprietary gasification technology, the firm converts waste products, such as plastics and biomass, into high-quality synthetic gas. This gas can subsequently be used across a wide range of clean energy generation applications, such as hydrogen turbines and biofuels. Needless to say, this sounds like a promising technology, especially since many governments (the UK included) are seeking to become carbon neutral by 2050.
In May last year, it provided an update on its projects that began sending the share price on an upward trajectory. It announced 10 new commercial deals for its services that have a potential aggregate value of €120m. Given that revenue in 2019 was a mere €1.69m, this is a pretty substantial opportunity.
But the real driver behind EQTEC’s rising share price appears to be its Billingham project. This facility, which has yet to be completed, is on track to becoming the UK’s first power plant to use its gasification technology. Once brought on-line, it could convert up to 200,000 tonnes of waste into 25 Megawatts of clean electricity. That’s roughly enough to power 50,000 homes.
Taking a step back
While the progress achieved in 2020 is impressive, there is still a long road ahead. EQTEC has acquired the land and planning permission to begin the construction of the Billingham facility. But it may be several years before it starts producing clean energy.
Its new commercial sales are also exciting, but their total value won’t be received for quite some time. Payments from these sales will be completed based on milestone achievements over the next three years. As such, the current most optimistic forecasts indicate a total revenue of €15m in 2021.
Comparing that to EQTEC’s current market capitalisation of £156m does make it look a tad expensive in my eyes, especially since the firm is currently unprofitable. This may change in the near future. But until it does, the company is reliant on outside funding to keep the lights on. Suppose it is unable to secure a source of cash flow from investors or lenders? In that case, its restricted liquidity would likely start causing problems and the EQTEC share price may begin to suffer for it.
The bottom line
The technology and future potential of EQTEC are undoubtedly alluring. But like many other waste-to-energy businesses, it’s very young in its development cycle and remains largely untested. At least that’s what I think.
To me, the EQTEC share price is almost definitely being propped up by investor expectations, which can lead to significant declines if those expectations are not met. Therefore, I won’t be adding the company to my portfolio today. But I will be watching it closely, especially the progress of its Billingham project.
Zaven Boyrazian does not own shares in EQTEC. 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.