Buying shares in a company which has delivered stunning capital growth in recent months can be a risky business. That’s in the short term at least, as investors sitting on high profits may wish to realise them. This can lead to downward pressure on the company’s share price in the short run.
However, in the long run a company with a bright financial and operational outlook could be worth buying regardless of its past share price performance. Could that be the situation for Versarien (LSE: VRS) after its sharp rise since the start of the year?
Upbeat outlook
The materials technology company appears to offer significant upside potential. Its performance in the first half of the year was relatively impressive, and it seems to be attracting the interest of various potential customers. This could lead to rising sales and an improved bottom line, while the company’s financial position has improved significantly following its fundraising last month. This should allow it to scale-up production in order to meet potentially higher demand over the medium term.
Looking ahead, the global market for graphene is expected to grow significantly in future years. This could provide the company with a tailwind as it competes with rivals to generate market share within what looks set to be a lucrative industry with a range of different applications.
Risk/reward
Of course, Versarien remains a lossmaking business even after its revenue increased by almost 170% in the first half of the current financial year. Therefore, it appears to have considerable risks as well as high reward potential. This could mean that its share price remains highly volatile, and paper losses may be on the cards for new investors. Still, with an impressive outlook and significant growth potential, it could be worth a closer look for long-term, less-risk-averse investors.
Further opportunity
Also making sharp gains since the start of the year have been shares in Victoria Oil & Gas (LSE: VOG). The natural gas supplier and domestic energy provider in Africa has delivered a share price rise of over 60% since the start of the year.
According to an update released on Friday, the company has been able to rectify the electrical problems which were encountered when well La-108 was successfully drilled to its planned target depth. The problems delayed further progress by around two weeks, but now that they have been solved the 4.5 inch liner has been run to the target depth and cemented in place.
Looking ahead, Victoria Oil & Gas is expected to move into profitability in the current year. This could boost investor sentiment – especially since it trades on a price-to-earnings (P/E) ratio of around 6. This suggests that even after its share price rise since the turn of the year, there could be further upside ahead. As such, now could be a good time to buy the stock for the long run.