Since its IPO in December, the Helium One (LSE: HE1) share price has risen around 450%. The release of its preliminary drilling results has caused recent optimism, and the shares are up over 30% since this moment. But Helium One is still pre-revenue and is therefore extremely speculative. As such, should I be adding this exciting stock to my portfolio or are there still far too many risks?
What does the company do?
The goal of Helium One is simple: to become a high-grade helium producer for the international market. This could prove extremely lucrative. Indeed, helium is an element with a number of useful properties and different applications. For example, it is used in MRI scanners, telescopes and spacecraft. Nonetheless, helium is a finite resource, and its global supply has been decreasing. This means that helium production has become dependent on hydrocarbon exploitation and its price has also risen greatly.
This is where Helium One comes in. The company currently has three project sites in Tanzania and drilling has just started. Although it is still in its early stages, things have looked promising so far. On 21 June, it was announced that drilling mud had 2.2% helium in it at a shallow depth. Although this is not commercially viable, it is extremely promising that the company is sitting on a ton of helium, which could prove very profitable. If this is the case, then the Helium One share price is set to soar.
What are the risks?
As HE1 is only in its exploration stages, there are many risks. For example, the company is currently not generating any revenues, which also means that it is burning cash at a fast rate. Its current annual cash burn is around $2.7m, so it has around 2.5 years left on its cash runway. This may mean that the company will be forced to raise money through issuing debt or more shares. I think the best way to raise money would be issuing shares, yet this would likely have a negative effect on the HE1 share price. Therefore, this is a risk that must be considered.
Furthermore, if future results from the three projects do not live up to expectations, the Helium One share price would be the main loser. At the moment, it is extremely difficult to predict which way these results will go, and therefore, the stock is highly speculative and lacks safety.
Is the Helium One share price a great opportunity?
I am extremely tempted by the Helium One share price and think it could potentially skyrocket in the future. This is because helium is very much in demand, and HE1 is therefore in a high-growth market. In addition, the company’s current projects look extremely promising. Nonetheless, I am incredibly wary of speculative stocks and am not going to buy right now. Instead, I want to see stronger evidence that the company will be able to produce helium and reach profitability at some point.
Stuart Blair 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.