Stock market

After a 627% rise, is Helium One share price primed for another rally?

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During the last three months, Helium One (LSE:HE1) shares are up 627%. While market movements have been somewhat calmer over the past month (up 7%), some are thinking this consolidation phase will lead to another rally. Given that the stock is still down 74% from last year, there’s plenty of room to run. But is it really feasible?

Last few months

I last wrote about the company in February. It was a time when stocks were soaring, driven by retail investors like there was no tomorrow.

The main driver behind the rally came from news from the Etumbola West-1 well in the Rikwa Rift Basin in Tanzania. Helium One focuses on the exploration and production of helium resources, so any news regarding an ongoing project can be transmitted to the market.

In this case, testing revealed that the well contained up to 4.7% helium. If true, this would make it one of the largest sources of helium globally. More extensive well tests on the same well are now scheduled for Q3 this year. Nevertheless, positive expectations of the project’s commercial success are enough to send the stock into orbit.

Trying to minimize the chance.

Buying stocks purely on speculation that a project will succeed is not very smart. Of course, I might get lucky. But it is more of a gamble than an investment. So are there reasons why an investor would see value in the stock right now?

The most recent half-year results show that the firm is in a supportive financial position. He has $8.7 million in cash. When I compare this to the loss of $1.4m for the half year, it is clear that the firm has enough money to continue operating for years to come. This is good, because until helium can be extracted and sold to generate revenue, the business will continue to post losses.

However, due to the loss-making nature of the firm, it is difficult for me to accurately predict the value at which the stock should be trading. It becomes even more difficult because I don’t know what the potential profit might be from a well in Tanzania.

Don’t get me wrong, a helium reserve as large as the tests show would be a huge win for investors. If things go well over the next year, I see the share price at 52-week highs just above 10p. At the current share price of 1.55p, this is a big move.

An incredible rally

As strange as it sounds, I think the stock may continue to rally later this year, but I wouldn’t invest. The firm appears to be in a strong position, and if more positive test results come in, the stock should jump.

However, I still don’t have enough faith to stack the odds in my favor. There are other great businesses in other sectors that have better exposure to future earnings. Although my potential reward for buying such shares is more limited, the potential for profit is high.


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