The Helium One Global (LSE:HE1) share price has been on fire since its IPO in December. In fact, it’s up more than 450% in the space of five months! That is some fairly impressive growth, in my opinion. But what does this business do? Can the stock continue to rise? And should I be adding it to my growth portfolio?
The rising Helium One share price
Helium One is an early-stage helium exploration company operating within Tanzania. While most of us associate helium with balloons and high-pitched voices, the element has many modern practical uses that have driven up demand.
It’s become an essential component for MRI machines in hospitals, optical fibre manufacturing, and even rocket technology. As a result, the global helium market has been growing considerably. According to The Business Research Company, the total market size stood at $10.6bn in 2019 and could reach $16bn by 2023. Seeing an entire industry grow by around 60% in the space of four years is quite exciting. And indicates to me a potentially significant investment opportunity.
But what makes Helium One special versus its competitors? Despite the abundance of the element on this planet, helium is rarely found in concentrated reservoirs that are economically viable to extract. This is one of the primary reasons why there is currently a limited supply of the gas. However, thanks to its first-mover advantage, the firm has secured multiple prospecting licenses covering an area of just over 4,500 square kilometres. So far, its Rukwa Project appears to be the most promising and could contain up to 138 billion cubic feet of high-quality helium gas.
Needless to say, this could be a major opportunity for the business. And so I’m not surprised that the Helium One share price has exploded, especially since the company recently announced that drilling equipment is on its way to the Rukwa extraction site.
Risks to consider
As exciting as its strong competitive position is, the share price looks like it’s being inflated by significant investor expectations. As it stands, the business has no ongoing helium extraction operations. And thus, it does not currently have a source of revenue. Yet the market capitalisation of the company today is around £120m.
If future tests at the Rukwa site confirm the preliminary estimates of the size of the helium deposit, then perhaps this valuation could be justified in my eyes. However, suppose the test results don’t meet expectations, or the firm runs into delays. In that case, I believe the Helium One share price could take a big tumble.
The bottom line
Resource exploration companies are fraught with risks. Pantheon Resources serves as an excellent example of what can happen when expectations aren’t met. As a reminder, the company delivered poor test results, and its stock price crashed by nearly 50% very quickly.
Personally, I do believe Helium One has the potential to become a leading supplier in its industry. But it’s far too soon to tell. So the stock is staying on my watch list for now.
Zaven Boyrazian does not own shares in Helium One Global. 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.