The Helium One (LSE: HE1) share price has exploded in value over the past few months. Year-to-date, the stock is up nearly 140%. Over the past 12 months, the stock has added 360%.
It seems investors have been rushing to buy the stock as it begins a three-well drilling programme at its Rukwa project in southwest Tanzania.
Management hopes the drilling programme will uncover a significant helium resource, the colourless, odourless, non-toxic gas used in applications from MRI scans to rocket propulsion and semiconductor manufacturing.
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The market for this gas is expanding rapidly. It’s projected to be worth $15.7bn by 2023, up from around $10.6bn by 2019.
However, I should note Helium One is still an exploration-stage company. It’s a long way to go before it can claim to be a helium producer. And an even longer way before it can claim to be profitable.
Nevertheless, there’s no denying the company has potential. As such, I’ve been weighing up whether it is worth adding the stock to my portfolio.
Helium One share price analysis
The first thing I try to do before I add any stock to my portfolio is work out how much the business is worth. I want to be sure I’m paying a reasonable price for the enterprise and not overpaying. Doing so can be a costly mistake.
Trying to work out how much the Helium One share price is worth isn’t easy. As is the case with all exploration stage companies, it’s virtually impossible to place a value on their assets. There are too many uncertainties to consider.
We don’t know if the assets are recoverable and how much they’ll be worth. It’s also impossible to say whether the company will actually have the funds needed to develop the prospect.
However, one group of analysts has come up with a price target of 102p per share. This is based on an analysis of the three exploration wells the group is planning to drill on the Kasuku, Itumbula and Mbuni prospects.
I think this shows the company’s potential, but this is just an estimate at this stage. There’s no guarantee the Helium One share price will ever reach this level.
High risk
Until we’ve the company’s drilling programme results, I’m going to stay away from the stock. Those results should provide investors with further insight into the firm’s potential.
But I think there are too many risks hanging over the business right now. So many exploration companies fail in their early stages, and there’s no guarantee Helium One will succeed. That’s why I’m staying away from it for now.
Nevertheless, this enterprise may be more suitable for investors who are comfortable with the level of risk involved in investing in early-stage exploration companies.
