Should I buy or avoid Ceres Power shares?

Ceres Power (LSE: CWR) shares have been on a wild ride over the past couple of weeks. Shares in the hydrogen fuel cell start-up have slumped 37% since the beginning of the year. Over the past 12 months, the stock is down 56%. 

As I have noted before, I think the hydrogen industry has enormous potential, and with this being the case, I have been watching progress at Ceres carefully. I have also been watching the company’s share price closely. As the stock has come under pressure, it has become more appealing from an investment perspective. 

The outlook for Ceres Power shares 

I am trying to determine if I should buy the stock as a speculative investment or long-term growth play. The other option is to avoid the stock entirely. 

I can certainly see a case for avoiding the enterprise. Ceres Power is an early-stage hydrogen technology business. It is not profitable, and it could be years before the company moves into the black.

At the same time, funding will continue to be an issue.

After a significant fundraising late last year, the corporation does have plenty of cash resources. Its cash balance stands at around £250m.

This could be enough to fund the enterprise to self-sufficiency, but nothing is guaranteed in the world of business. If the company gets involved in a price war with its competitors, these cash resources may quickly evaporate. 

Still, despite these risks, I can also see plenty of potential for the business.

In its latest trading update, the company noted that revenue over the 12 months to the end of December is expected to be 44% higher than the previous year. At the same time, management has made significant progress in agreeing on new deals with partners to manufacture its hydrogen fuel cell technology. 

Licensing model 

Unlike other corporations in the sector, Ceres licences its energy technology to individual manufacturers. This removes some of the costs and construction risks of developing new manufacturing facilities. It can also produce larger profit margins.

Some of the company’s major partners are looking to roll out its solid oxide fuel cell technology over the next year. South Korean partner Doosan is launching its version of the product in 2022. It has also announced an £89m investment in new production facilities, which will come online in 2024. 

With partners set to ramp up production in 2022, it looks to me as if Ceres is on the edge of a transformative year. Not only will the production increase hopefully drive revenue growth at the firm, but it could also act as a marketing tool. Potential partners may be more inclined to work with the business when they see its technology in action. 

Considering this potential for growth over the next 12 months, I would be happy to buy the shares as a speculative investment for my portfolio in the years ahead. With a strong balance sheet and growth in the pipeline, I think the outlook for Ceres Power shares is bright.