While 2022 has not started well for all stocks, Helium One (LSE: HE1) shares have surged since the year began. They are up 52% so far in January and at one point last week they had gained 94% since the start of the month before losing steam.
Over the past year, the shares show a gain of 54%. But it has been a rollercoaster journey along the way. As the Helium One share price has been falling in recent days, could this be a buying opportunity for my portfolio?
Dramatic price swings
Why has the share price seen such big movements this month? Is it the result of a speculative frenzy in the £70m company, or does it reflect improving business prospects?
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The shares had already started climbing quickly when the company made an announcement on 17 January that I think boosted investor sentiment further. It revealed that a study had provided heat-map data across the company’s licensed areas. The results showed anomalies across various parts of the estate, suggesting the potential presence of helium.
A lot of hot air?
That may sound promising. But I am not persuaded that this news improves the investment case for Helium One.
For example, the company reported “multiple surface anomalies identified within all three basins that require follow-up geophysical investigation”. What does that actually tell me as an investor? It gives me no sense of the possible sense or value of the helium. Nor does it mean that Helium One could extract any gas and get it to the market profitably. On top of that, the conclusion is basically that more investigation is needed. That suggests these preliminary results could yet turn to disappointment when more investigation is done.
Commercial model
If more work is done it could also end up leading to a need for new capital. As the company noted last month, it is “well funded for current exploration activities”. I take that to mean that the business that has no commercial revenue is spending money in an exploratory phase. If it finds significant helium and wants to exploit it commercially, it may need to raise more money by diluting existing shareholders.
If the exploration is ultimately fruitless, what will Helium One shareholders actually own? After all, the business case is all about helium. If the company’s plots do not allow for commercial helium extraction and sales, the reason for the existence of Helium One will be called into question. Like most early stage exploration companies, I see this as a speculative business model. An awful lot depends on exploration and feasibility studies that could come to nothing.
Things might turn out better than that. If further studies show the company’s license area is rich in helium it could profitably extract, the business model could turn out to be lucrative. That could support a higher Helium One share price.
My action plan
For now though, I have no intention of buying Helium One for my portfolio. I see it as a speculative exploration company and so far am unpersuaded by its commercial prospects. Lots of gas production companies are already highly profitable and have broadly diversified asset bases. I would consider adding firms like that to my holdings before Helium One, no matter how low its share price falls.
