While the Ceres Power (LSE: CWR) share price has seen a steady decline this year, we have witnessed a slight bounce back since the middle of July with a 10% increase in the last week.
But is there another storm coming for the UK-based fuel cell developer? Here I examine if Ceres Power will continue to bounce back.
High commercial potential
Renewable energy sources continue to be a red-hot topic for the future of the energy industry, and Ceres is certainly an already established player in the field as the company has shown considerable growth over the past 20 years.
The company’s revenues reached £21.9m in 2020, up 15% from the previous year.
Ceres is also branching out its technology into many different fields. One of these areas is the use of hydrogen to fuel buses and trucks. Chinese company Weichai is currently planning to launch a Weichai bus trial. The trading report for this venture could be a huge commercial win for Ceres and great news for investors as Weichai has an equity investment in Ceres worth £54.3m.
I think as the commercial value of hydrogen related technologies becomes increasingly realised in the next decade, Ceres could see great profits if it continues to offer a successful and marketable model for its technology. This is what investors hope will be the case, but I am doubtful.
Ceres has additional commercial investors in Bosch and Doosan. In 2020, Ceres made a £43m deal with Doosan to build a manufacturing plant in South Korea and develop high power products to address utility scale power applications.
I think the potential marketable opportunities surrounding Ceres Power demonstrates that the company could kick the cobwebs of its share price slump. However, I am not willing to add Ceres to my portfolio until it can prove that this growth will be realised and sustained.
What’s holding the share price back?
Whilst the company is making sizeable deals for growth, I am still concerned on the investment model presented by Ceres.
I have doubts in Ceres because it is a young and growing company, because of the uncertainty surrounding the future demand for fuel cell technology, and because it is hard to tell which companies will end up being the winners in this industry. These factors have left me unsure on the trajectory of this share price and reluctant to invest.
It is also important to mention just how drastic the drop in price has been since the start of the year. The price, before the bounceback of last week, had dropped by 30% since January. The volatility of the Ceres Power share price is one of the main reasons why I don’t believe an investment would return well on profits for me.
In addition, whilst Ceres has managed to improve its balance sheet with fundraising, this has been done at the expense of diluting existing shareholders. I am concerned that if I were to buy Ceres Power shares, then this could happen again as the company looks to grow.
Will the Ceres Power share price continue to bounce back?
I believe it really depends on whether Ceres can continue to provide a marketable and commercial solution for its technology in the future. Deals with Bosch, Doosan and Weichai are all good indicators that the former could be achieved.
However, until that potential has a more solid basis for being realised, I wouldn’t be surprised to see the Ceres Power share price fall back down again and this is why I won’t be investing any time soon.
John Town 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.