One UK stock that’s getting a lot of attention from investors right now is Helium One Global (LSE: HE1). Last week, HE1 was the fourth most purchased stock on Hargreaves Lansdown.
So, is this a growth stock I should buy for my own portfolio? Let’s take a look at the investment case.
What does Helium One do?
Helium One is an AIM-listed company engaged in helium exploration. Helium is a colourless, odourless, non-toxic gas that’s used in a wide range of applications. The company’s aim is to become a producer of high-grade helium for the international market.
HE1 holds around 4,500 square kilometres of exploration licences in provinces in Tanzania. It holds 100% of these licences and has exclusive rights to develop the assets.
At its current share price, Helium One has a market capitalisation of around £130m. This means it’s a very small (micro-cap) company.
The helium market is growing
It’s worth noting that the market for helium is growing at a rapid rate. In 2019, the global market was worth around $10.6bn. However, by 2023, it’s expected to be worth around $15.7bn.
In terms of its applications, helium is used for leak detection, in MRI scans, in rocket propulsion systems, in semiconductor manufacturing, and, of course, in party balloons.
Why are UK investors buying HE1 shares?
As for why investors are excited about Helium One shares, is due to the fact that the company is shortly about to start a three-well drilling programme at its Rukwa project in south-west Tanzania.
Recently, the group advised it had commenced mobilisation of a drilling rig and ancillary equipment to a forward holding yard about 100km away from the project area. It added that mobilisation is progressing on time to allow the company to achieve its target spudding date of mid-May.
It’s also worth pointing out the company’s recently listed in the US on the OTCQB Venture Market, under the ticker HLOGF. The group says the US has a “significant interest” in helium as a commodity. And it hopes the visibility it gains from this listing will increase shareholder demand.
Should I buy HE1 shares?
Having looked at Helium One’s business, my conclusion is that this stock is too speculative for me.
I’m happy to invest in small-cap growth stocks. However, I’ve found over the years that the way to generate consistent profits from small-caps is to focus on companies that are:
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Already profitable
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Highly profitable (i.e. a high return on capital employed)
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Consistently growing
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Financially sound
Looking at Helium One, it doesn’t meet my criteria. This company is generating no revenues or profits and it’s impossible to know what kind of growth it may generate in the future.
Given its speculative nature, I’ll be leaving this stock alone. In my view, there are much better growth stocks I could buy today.
