The UK, Europe, and the US have made renewable energy part of their ‘build-back-better’ plans for post-Covid economic recovery. Russia’s invasion of Ukraine has led many countries to rethink their future energy security. And, more broadly, hydrogen is seen as a key element in the global drive to reduce emissions from energy consumption and achieve net zero by 2050. Some analysts estimate the hydrogen economy could be worth more than $10 trillion by that time.

What are hydrogen stocks?

Hydrogen stocks are companies in the renewable energy industry that are primarily focused on the development, manufacture, or sale of hydrogen fuel technology, equipment, or services.

Given the potential size of the market, it’s not surprising to see oil giants, like BP, major utilities, like SSE, and chemical companies, like Johnson Matthey, in the early stages of incorporating hydrogen energy into their business plans. 

However, there are a number of firms focused exclusively, or almost exclusively, on the hydrogen economy. Some have been established for many years.

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Top hydrogen shares in the UK

Here are the UK’s biggest pure-play hydrogen stocks:

ITM Power

Founded in 2001, ITM Power became the first hydrogen company on the London Stock Exchange when it listed in 2004.

It has developed and manufactures proton exchange membrane electrolysers, which create green hydrogen using only renewable electricity and water. It has a partnership with Linde, the world’s largest industrial gas company, which also owns 16% of ITM’s shares. Other partners include oil giant Shell and leading European natural gas transport and storage operator Snam.

City analysts are forecasting a step-change in ITM’s revenue to over £50m in its 2023 financial year.

Key metrics:

• Market cap: £1,305m (as of 13 June 2022)
• Average daily volume: 3.3m
• HQ: Sheffield, UK
• Cash/debt: £364m/no borrowings (as of 30 April 2022)

Ceres Power Holdings

Also founded in 2001, Ceres Power joined the stock market a few months after ITM in 2004. It’s the UK’s other hydrogen stock with a market capitalisation in the £1bn+ category.

The company has developed solid oxide fuel cell technology for hydrogen production. Its strategy is to license its technology to global original equipment manufacturers and generate royalties as those manufacturers achieve full-scale commercialisation. Its partners include China’s Weichai Power and Germany’s Bosch. The former owns 20% of Ceres’s shares and the latter 18%.

Analysts have pencilled-in revenue of around £40m for Ceres in 2023.

Key metrics:

• Market cap: £1,010m (as of 13 June 2022)
• Average daily volume: 1.0m
• HQ: Horsham, UK
• Cash/debt: £245m/no borrowings (as of 31 December 2021)

AFC Energy

Founded in 2006 and listed on the stock market in 2007, AFC Energy is one of a number of UK hydrogen stocks currently capitalised in the £100m-£200m bracket.

The company has developed alkaline fuel cell systems that use hydrogen to produce clean energy. It has inked a number of strategic collaborations including with Swedish/Swiss technology multinational ABB, a leading provider of electric vehicle charge points and electrification and digitalisation technologies. ABB also subscribed for £3.25m AFC shares in a subsequent fundraising.

City analysts are forecasting AFC’s revenue to break through £10m for the first time in 2023.

Key metrics:

• Market cap: £169m (as of 13 June 2022)
• Average daily volume: 3.7m
• HQ: Cranleigh, UK
• Cash/debt: £55m/no borrowings (as of 31 October 2021)

Proton Motor Power Systems

Proton Motor Power Systems was formed and listed on the stock market in 2006 to fund the commercial development of research and pilot fuel cell projects conducted in Germany over the previous decade.

The company has developed a hydrogen fuel cell module integrated with an energy storage system to create an electric fuel cell hybrid system with a zero-carbon footprint. Historical revenue is running below £3m and there are currently no financial forecasts on the company available.

Key metrics:

• Market cap: £147m (as of 13 June 2022)
• Average daily volume: 0.4m
• HQ: Newcastle-upon-Tyne, UK
• Cash/debt: £2m/£84m (as of 31 December 2021)

Hydrogenone Capital Growth

In July 2021, Hydrogenone Capital Growth became the first hydrogen investment company listed on the London stock market. By the end of the year, it had deployed almost half the £105m funds it had raised at its flotation.

Around 9% of the capital (£10m) was invested in 19 international hydrogen stocks. It expects these companies to be the eventual leaders in the listed hydrogen market. Its UK picks were ITM Power, Ceres Power, and AFC Energy.

However, Hydrogenone’s performance will rest more on its larger investments in a smaller number of unlisted firms in the sector. For example, it’s invested £10m in Bramble Energy, which has pioneered a printed circuit board fuel cell solution.

Key metrics:

• Market cap: £122m (as of 13 June 2022)
• Average daily volume: 0.2m
• HQ: London, UK
• Cash/debt: £34m/no borrowings (as of 31 December 2021)

Clean Power Hydrogen

As mentioned, ITM is London’s largest and first-listed hydrogen stock, and a leader in proton exchange membrane electrolysers. By contrast, newly listed (February 2022) Clean Power Hydrogen is aiming to ramp-up commercialisation of membrane-free electrolyser technology. It says this technology, in combination with cryogenic gas separation, delivers very high purity hydrogen and medical-grade oxygen.

One analyst suggests the company could see revenue of close to £30m by 2023.

Key metrics:

• Market cap: £110m (as of 13 June 2022)
• Average daily volume: 0.1m
• HQ: Doncaster, UK
• Cash/debt: £0.5m/£0.4m (as of 31 December 2021)

Investing in US hydrogen shares

Despite a fair range of hydrogen stocks on the UK market, there are some larger enterprises in this sector on foreign exchanges. Here are the leading US players in order of market capitalisation:

• Plug Power
• Bloom Energy
• Ballard Power Systems
• FuelCell Energy

Are hydrogen stocks right for you?

There’s little doubt the hydrogen economy will increase to many multiples of its current size in the coming decades. With such a strong structural backdrop for growth, investing in hydrogen shares could be highly rewarding.

Having said that, stocks in the sector also come with higher risk. The businesses are at an earlier stage of development than some in other areas of the renewable energy market. All of the six UK hydrogen companies and four US names featured are currently loss-making businesses. In addition, they’re not forecast to generate positive cash flows any time soon, far less pay dividends. As such, these won’t be the right stocks if your primary focus is on income.

As the hydrogen market grows, and rival technologies are put to the test when the full competitive dynamics of the industry emerge, there are likely to be winners and losers. If you’re prepared to accept above-average risk in exchange for potential high capital returns from the long-term winners, investing in green hydrogen stocks might be right for you.

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Share price woes

The company’s share price chart is not a thing of beauty.

Over the past 12 months, the shares have fallen 67%. Looking back further though, this is something of a return to what went before. Before the price started its rapid ascent in November 2020, AFC Energy shares were trading within 10% or so of where they are at the moment. Between then and now, they moved a long way up — and a long way back down again.

What next?

The reasons for that fall are easy enough to understand. Indeed, I think they are in plain sight in the company’s interim results, which were published yesterday.

Revenue remains tiny – just £276,000 at the interim stage. While that represents an 85% increase on the same period last year, it looks like small beer for a company with a market capitalisation in excess of £150m.

Although revenues grew, so did losses – at a faster rate. They jumped 135% in the first half to stand at £7.8m. This means that, for £1 of revenue the company made in the first half, it lost over £28. That hardly sounds like a compelling business model.

Arguably though, this reflects the fact that AFC is still developing its business. That takes time. On the commercial front, there is good news. For example, the firm received the first commercial order for its S Series liquid cooled fuel cell system. That could be worth up to £4m, which would certainly help to boost revenue. But I also think it is notable that the customer is engineering giant ABB. If a sophisticated customer like that is paying money for an AFC product, I take it as a good sign for the firm’s commercial potential.

AFC is also leasing systems right now to a variety of clients, notably in the construction sector. If they like what they see when using the systems, I would hope that at least some of those leases could turn into future sales.

My move on AFC Energy shares

I think the sales pipeline is showing more promise. I also like the way AFC is making inroads into large-scale markets, as its deal with ABB shows.

But that is not enough to tempt me to buy the shares for my portfolio any time soon. The business remains heavily loss-making. This brings a risk that it will need to boost liquidity and dilute shareholders, as it has done previously. The firm is sitting on £49m of cash, but growing losses could eat into that heavily.

At the moment, AFC Energy lacks a proven business model. Its path to profitability remains unclear. Therefore I will not be buying any shares.

So, what does this company do, and is it right for my portfolio?

What does AFC Energy do?

AFC Energy is a Surrey-based company developing industrial fuel cells. The firm has excellent green credentials, developing low-cost alkaline fuel cell systems using hydrogen to produce zero-emission electricity.

The company is developing a range of hydrogen fuel cells and hydrogen carrier fuel conversion technologies for application in multiple sectors. The products can be used in construction, electric vehicle charging, shipping, and data centres.

AFC says its offerings can help off-grid operators around the world deliver their net-zero commitments.

Prospects

Some analysts are uncertain about the market for these off-grid hydrogen fuel cells. And there’s definitely some concern for me here. The issue essentially revolves around how easy it is to get the hydrogen fuel to the operating site and how economical and effective the fuel cells actually are.

For example, the group is pushing forward with a project to deploy its technology to power electric vehicle recharging stations. However, in the UK at least, you’d expect it’d be relatively simple to connect electric vehicle charging stations to the grid. In which case, there wouldn’t be much need for the fuel cell. However, this may be more useful in less densely populated nations like Australia.

The firm is perhaps best known for powering the off-road vehicles that shoot around the racetracks of Extreme E. However, I think this highlights my point. I can’t see a massive call for its application in non-remote parts of the world. And to date, the EV revolution has been more of an urban phenomenon.

That’s not to say there won’t be other applications for this technology. The company has signed a lease agreement with construction group Keltbray to supply its technology. I’ll keep a close eye on this agreement and see whether there’s scope for growth here.

The fuel cell specialist will deploy its first mobile hydrogen-based Power Towers later this year. The deployment was cited as means of further validating the company’s value proposition, with construction sites the focus. 

Performance

The company announced its half-year results on Wednesday, and they were a little disappointing.

Half-year revenues came in at £276,000, most of which came from the electric vehicle rally Extreme E. The group said that some of the revenues came from its partnership with a Swiss engineering group. Losses in the last six months hit £8.5m.

Cash use was £6.7m, meaning the company had a cash balance of around £48.6m at the end of March.

Will I buy?

So, will I buy AFC Energy for my portfolio? While I have a lot of interest in hydrogen power, this one is a little speculative for me right now. However, I’ll be keeping a close eye on developments.

The world is continuing to move away from carbon-based fossil fuels in favour of cleaner alternative energy sources. Decarbonising the global economy will take an investment of over $100trn over the next three decades, experts have estimated.

So with the rise of popularity in the renewable energy sector, is investing in renewable energy stocks a good idea? Let’s break it down.

What are renewable energy stocks?

Renewable energy stocks allow you to invest in companies at the centre of the green energy transition and will allow you to share in any successes these companies have along the way.

Renewable energy  sources include solar power, wind, biofuels and even nuclear. These all aim to produce the energy we all require without emitting any (or much) carbon.

You may have seen examples of renewable energy in the form of wind turbines or perhaps solar panels on houses. These are becoming more and more common, demonstrating the rise in renewable energy, a largely emerging market.

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Top renewable energy stocks in the UK

SSE

• Market Cap: £19.31 billion
• Average Daily Volume: 3,682,683
• HQ: Perth, Scotland

Part of the FTSE 100, SSE was previously known as Scottish and Southern Energy. It is a multinational energy company headquartered in Perth, Scotland and operates across the United Kingdom and Ireland.

SSE says it is driven by its purpose – to provide energy needed today while building a better world of energy for tomorrow.

The company is a large generator of renewable electricity and one of the largest electricity network companies in the UK.

SSE develops, owns and operates low carbon infrastructure, designed to support the zero-carbon transition. This includes onshore and offshore wind, hydro power, electricity transmission and distribution grids, and efficient gas-fired generation.

A renewable energy company of significant size, SSE employs around 10,000 individuals.

Greencoat UK Wind

• Market Cap: £3.58 billion
• Average Daily Volume: 1,653,468
• HQ: London, England

Greencoat UK Wind  is a listed renewable infrastructure fund, invested in operating UK wind farms, which are generating income. The fund is a constituent of the FTSE 250.

It claims to offer an attractive, sustainable dividend, which increases in line with RPI, while preserving capital in real terms.

Greencoat UK Wind is currently invested in 43 wind farms, both onshore and offshore. Its net generating capacity is 1,442MW and its assets have produced over 14.4TWh of power since the firm had its IPO in March 2013.

ITM Power

• Market Cap: £2.12 billion
• Average Daily Volume: 2,132,985
• HQ: Sheffield, England

ITM Power’s  aim is to help the world reach net-zero through the power of green hydrogen. It is the first hydrogen-related company to be listed on the London Stock Exchange.

For over 20 years, ITM Power has designed and manufactured electrolyser systems that generate green hydrogen based on proton exchange membrane (PEM) technology. Its systems use just renewable energy and water, with oxygen and water vapour the only by-products.

The company has developed a lot in recent years. In 2021, it opened a new Gigafactory in Bessemer Park, Sheffield, which is now the world’s largest electrolyser production factory.

This should help ITM Power cut the cost of electrolysers by almost 40% in the next three years, from increased automation and economics of scale.

It also works with partners – including Linde, Shell, Snam, Hyundai, and Honda – to scale its impact, industrial reach, and market penetration.

RELATED: Investing In Water Stocks In The UK

Ceres Power Holdings

• Market Cap: £1.38 billion
• Average Daily Volume: 320,670
• HQ: Horsham, England

Ceres Power Holdings’ main purpose is to help sustain a clean, green planet by ensuring there is clean energy everywhere in the world.

The company came out of Imperial College in London, where Professor Brian Steele invented the SteelCell. Since then, Ceres has been working to perfect this technology for almost 20 years, positioning itself as a global leader in fuel cells and electrochemistry expertise.

A fuel cell is a power generation unit that produces, without any burning, an electric current from a chemical reaction. Fuel cell generation results in energy with low or zero CO2 produced, as well as clean air with no particulates, SOx or NOx emissions.

Ceres wants to bring cleaner and cheaper energy to businesses, homes and vehicles. To do this, the company works with global partners to embed its technology in mass-market energy products.

AFC Energy Plc

• Market Cap: £239.46 million
• Average Daily Volume:  4,101,870
• HQ: Cranleigh, Surrey

Surrey-based AFC Energy is a developer of alkaline fuel cells which use hydrogen for electricity production. It does this to generate clean energy, offering strong performance and low operating cost as part of global efforts to decarbonise industry.

Its Hydrogen Power (H-Power) systems use a patented design aimed at ensuring efficiency, robust quality and economic operation. It is also free of pollutants and greenhouse gases. 

The company aims to help all customers achieve a net zero carbon future through continuous development and improvement of its product base.

It has undergone a transformation in the past two years, which includes the launch of a strategic partnership with ABB in December 2020. This was designed to create the next generation of high power electric vehicle (EV) charging solutions for grid constrained locations across the globe.

This was further extended in April 2021 when ABB made a strategic investment in AFC Energy and entered into a new development agreement.

Investing in US renewable energy stocks

You may also want to consider investing in US renewable energy stocks. A lot of platforms in the United Kindgom allow you to invest in US companies.

Here are some US renewable energy stocks to consider:

• Tesla (TSLA)
• Enphase (ENPH)
• NextEra Energy (NEE)
• Clearway Energy (CWEN)
• Brookfield Renewable (BEP)
• First Solar (FSLR)

Are renewable energy stocks right for you?

Clean energy stocks will not be right for everyone. Whether they are right for you will depend on the make up of your portfolio, your risk appetite, and your financial goals.

If you care about sustainability, climate change, and want to have a positive impact on the planet while hopefully making money too, then investing in renewable energy stocks may be right for you.

These are large companies with growth potential. But, the value of any company can go down as well as up. Make sure you do your own independent research before making any investment, including renewable energy stocks.

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TheWorks.co.uk

A storm is beginning to engulf the UK retail sector. Latest research from the Confederation of British Industry showed retail sales tanked in April and fell for the first time in 13 months.

I don’t believe that all British retail shares should be avoided. however. TheWorks.co.uk (LSE: WRKS) for example is a penny stock I’d buy today. This is because it operates at the value end of the retail spectrum.

Companies like these could be big beneficiaries of the squeeze on consumer spending power. Demand for the cut-price books, toys, and arts and crafts materials it sells could soar as people try to maintain their living standards and switch down from more expensive operators.

Profits at TheWorks could suffer if supply chain issues persist. But all things considered I think this could be a top penny stock to own right now.

Bradda Head Lithium

I believe buying some choice lithium stocks is a great idea as electric vehicle (EV) sales take off. And I think Bradda Head Lithium (LSE: BHL) could be a lucrative way to go about this.

The manufacturing of lithium-ion batteries accounts for a mammoth four-fifths of all lithium demand, according to Wood Mackenzie analyst Jiayue Zheng. She predicts that demand for these batteries will soar around 500% between now and 2030 as governments seek to reduce emissions.

Bradda Head, then, could see sales of its product soar. The penny stock owns lithium projects in Arizona, like its Basin East asset, which has yielded a series of exciting drilling reports. Bradda Head has also begun drilling work at its Eureka site in Nevada in more recent weeks.

There’s a long way to go between now and first lithium production over at Bradda Head. Any setbacks could have a significant impact on profits for years. Still, it’s my opinion that the possible benefits of owning this penny stock overpower these risks.

AFC Energy

There’s a possibility that the future of green travel will be split between battery- and hydrogen-powered vehicles. For this reason I think AFC Energy (LSE: AFC) could be another wise investment today. This is despite the fierce competition it faces.

This penny stock manufactures hydrogen fuel cells. It is perhaps best known for powering the off-road vehicles that tear around the racetracks of Extreme E.

AFC’s fuel cells aren’t just about cars, however. For example, the company recently signed a lease agreement with construction group Keltbray to supply its technology. It has also signed strategic Partnerships with Mace Group and Acciona.

City analysts think AFC Energy’s revenues will shoot from around £600,000 in the last financial year (to October 2021) to £4.6m in the current period. Sales are tipped to rocket to £11.4m in fiscal 2023 too. I think this penny stock could deliver big returns over the next 10 years.

But there is more to succeeding as an investor than simply spotting a coming trend. After all, a lot of the companies that appear first in a new business area end up spending huge sums on research and development but do not create a successful business to show for it. Later entrants are able to build on those foundations, scale up production, and make sales without the initial startup costs.

So rather than just investing in any old hydrogen energy company, I think I need to assess each one individually. As well as its business prospects, I would consider its valuation. After all, even a great business can make a lousy investment when purchased at too high a price.

AFC Energy

One of the names on my list of UK shares that could give me exposure to hydrogen power is AFC Energy (LSE: AFC).

The firm develops alkaline fuel cells that are powered by hydrogen. For now, business is small. Last year’s revenue from customer contracts came in at just under £600,000. For a company with a market capitalisation of almost £300m that is a minuscule amount. The consistently loss-making operation saw its post-tax loss balloon to £9.4m.

However, not all the news at AFC is bad. For a start, although the revenue was small it was an improvement on the past few years when the number was zero. This suggests that AFC is starting to commercialise its technology. On top of that, the company’s order pipeline is growing. For example, last month it announced that construction group Keltbray has agreed to lease a hydrogen fuel cell power generator from AFC. This could act as a proof of concept for deploying AFC’s products on building sites. If successful, that may lead to more orders in future. Indeed, AFC and Keltbray have already been considering how they might deploy other generators later this year.

AFC’s technology is attractive and it has caught the eye of customers including engineering giant ABB, which ordered a fuel cell system for a high-power electric vehicle charging system. If AFC is able to land more orders like that from well-regarded companies like ABB, not only will it be good for revenue but it could also further boost the credibility of its technology.

For now, however, such prospects remain unproven. Meanwhile, the company continues to burn cash. Although it has a sizeable cash cushion, there is the risk that extended cash burn could force AFC to boost liquidity by diluting shareholders. At its current valuation, I think it looks pricy, so will not be adding it to my portfolio.

ITM Power

Another British company vying to succeed in the hydrogen energy space is ITM Power (LSE: ITM).

It designs and produces electrolysers that produce hydrogen for use as an energy source. The company has one factory already operating in Sheffield and is planning another. It is also eyeing up the potential for an overseas factory.

The output from this manufacturing footprint needs to find a home for the company to make money. Things are looking up in that respect. In its interim results, the company reported revenue of £4.2m. That was sharply up from £0.2m in the prior year period, although that had been hurt by pandemic restrictions. In January it had a contracted backlog of 86 megawatts of capacity. That was more than triple the backlog 12 months before.

Why I am not buying these renewable energy shares

Since then there has been further good news on the sales front. For example, ITM has reported a 24 megawatt sale to a Norwegian customer. But there have been problems, too, which illustrate some of the risks in the business. Progress on another 24 megawatt contract has been delayed by supply chain constraints. Such challenges are typical in scaling up commercialisation and I would not be surprised to see more ahead.

Like with AFC, although I think the technology here is promising and there are signs of growing commercialisation, I do not see value in the company at its current market capitalisation of £2.2bn. So I will not be buying the shares for my portfolio.

Ceres Power

A third UK renewable energy share I have been considering is Ceres Power (LSE: CWR).

The company has been scaling up its commercial operations, much like AFC Energy. Last year, total revenue and other operating income jumped 44% to £31.7m. I particularly appreciate the fact that £16.6m – over half – of that sum came from licence fees. Licence fees can be a profitable way to exploit research and development, as they do not typically carry the costs and risks involved in exploiting the technology directly. Instead, a company can sit back and wait for licence fees to arrive.

But it was not just revenues that grew strongly – so did losses. The annual operating loss increased from £14.8m to £23.4m. As revenues grow, I would hope losses will shrink and then profits emerge. That may happen in future, but for now, Ceres remains heavily loss-making.

Liquidity is not a pressing concern, with the company having net cash and investments of almost a quarter of a billion pounds. But it has built that cash pile partly through diluting shareholders when issuing new shares. I see that as an ongoing risk if Ceres decides to raise more capital.

The Ceres Power share price has fallen 39% in the past year. But the company still has a market capitalisation of £1.4bn. Despite its growing sales, I see that as expensive for the loss-making business so will not be buying Ceres Power shares for my portfolio.

AFC Energy

Fuel cell producer AFC Energy (LSE: AFC) has been steadily rising in recent months. But it remains a good 20% cheaper than it was at the beginning of 2022.

I think this represents a great dip-buying opportunity. I think the ‘green’ hydrogen fuel cells it manufactures could prove essential in helping governments to hit their net zero targets.

On the downside, the high cost of green hydrogen means that its commercial viability is yet to be proven. This leaves a big question mark over AFC Energy’s investment case.

However, if I’m brave enough to invest, I believe this penny stock could be a highly-lucrative buy. Demand for renewable energy is soaring as the fight against climate change intensifies. And green hydrogen — which unlike other types isn’t produced with the use of fossil fuels — is the cleanest out there.

Bursting with energy

I’m particularly encouraged by reports that the UK government is set to double its hydrogen production targets later this week. It’s thought that up to 5GW of green hydrogen in particular is being targeted by 2030.

I think interest in this low-carbon source could be about to ignite elsewhere too. And AFC Energy — which is showcasing its tech in the high-profile Extreme E racing series — could be a big winner.

Centamin

Gold stock Centamin’s (LSE: CEY) share price has cooled considerably during the past month. I believe its move back into penny stock territory represents another terrific dip-buying opportunity.

It’s my opinion that the precious metal it mines could rise rapidly in the months ahead as inflation takes off. Prices were already increasingly rapidly into the beginning of 2022. The worsening Covid-19 outbreak in China and the war in Ukraine have kept — and look set to keep — pushing inflation through the roof.

Rising prices are a natural inflator for gold demand. And resurgent physical gold sales at the US Mint illustrate how strongly interest in the safe-haven asset is improving. Some 155,550 ounces of its American Eagle coins were sold in March, up 74% month-on-month.

5.2% dividend yields!

I like gold stock Centamin in particular because of its solid all-round value. The Egypt-focused miner trades on an undemanding forward price-to-earnings (P/E) ratio of 12.9 times. It also sports a meaty 5.2% dividend yield.

There’s no guarantee that gold prices will go up, of course. Rapid central bank rate hikes to curb inflation, for example, and a subsequent lift in the US dollar could hit bullion values hard, and by extension profits at the likes of Centamin.

But on balance I think the outlook for gold prices is very bright. So I’d buy the metal producer to ride this theme.

Despite this, an enormous level of expectation is building up around some UK shares, leading to pretty lofty valuations. Let’s take a closer look.

The king of renewable energy stocks?

In early 2021, shares of the hydrogen business ITM Power (LSE:ITM) reached as high as 717p, up from around 70p just a year prior. That’s an extraordinary 1,000% return in only 12 months. And looking at what this business does, it’s not surprising why the renewable energy stock caught investors’ attention.

ITM Power designs and sells specialised electrolysers that extract hydrogen from water without any greenhouse gas emissions. Traditionally, hydrogen is produced as a by-product of the oil & gas industry, which isn’t exactly an environmentally friendly source of the element.

With hydrogen demand increasing for its various applications in electric vehicles and energy storage, ITM appears to have solved an enormous environmental challenge that could skyrocket the revenue stream. In fact, analyst forecasts have predicted sales to grow from £4.2m today to £60m by 2023!

Recently, market volatility has dragged the ITM Power share price to around 370p today. But that still places the market capitalisation at a lofty £2.2bn. Compared to existing fundamentals, the price-to-sales ratio comes in at a whopping 507 times. I think it’s fair to say that the valuation is almost entirely driven by expectations. But suppose this renewable energy business fails to deliver… In that case, I think the stock could be in for a tumble of majestic proportions.

Therefore, I’ll be keeping ITM Power on my watch list for now. The technology looks promising, but the price tag is simply too rich for my tastes.

Revolutionising fuel technology

Sticking with the theme of hydrogen, another UK renewable energy stock is making waves at the moment. There is a lot of anticipation surrounding AFC Energy (LSE:AFC) and its hydrogen fuel cell technology.

The group is currently executing a plan to deploy its specialist equipment to power electric vehicle recharging stations. Given petrol & diesel vehicles are already being slowly phased out by car manufacturers, the long-term viability of this business seems promising. And management has already reported significant interest from prospective clients.

However, just like ITM Power, the valuation is being driven entirely by forecasts. In 2021, the group saw its first form of revenue since 2017 — and it only amounted to around £593,000. But if analyst expectations are accurate, this could quickly surge to over £11m by 2023.

Today, the market capitalisation is £294m. So, just like ITM Power, investors are pricing this business based on forecasts rather than existing fundamentals, which opens the door to enormous volatility.

I do think the technology has enormous potential. But whether there is a viable business surrounding it remains to be seen. Therefore, I’m not interested in adding any shares to my portfolio today. But I will be keeping close tabs on how this group progresses in the future.

I have £753 sitting in my account waiting to be used. If I used this to buy stocks I could — based on the average rate of return of 8% a year — potentially turn this into £7,577 after 30 years.

Here are three of the best penny stocks to buy to boost my long-term wealth.

A top renewable energy stock

Manufacturers of hydrogen fuel cells like AFC Energy (LSE: AFC) will play a huge part in the clean energy revolution. This particular company specialises in ‘green’ hydrogen, too, the sort that doesn’t need to be generated using fossil fuels. Because of its lower carbon footprint it’s seen as the future of the hydrogen market versus dirtier ‘grey’ and ‘blue’ versions of the gas.

Green hydrogen is yet to be adopted on the scale of other low-carbon energies. And so AFC could be considered far more speculative than other renewable energy stocks. But momentum here is showing signs of improvement (in November, for instance, construction equipment giant JCB agreed a deal with Australia’s Fortescue Future Industries to import billions of pounds worth of the green gas).

Another low-carbon penny stock

I also think Berkeley Energia (LSE: BKY) could be a great stock to buy as the planet reduces fossil fuel usage. It isn’t a renewable energy stock but a uranium miner which is focussed on developing the Salamanca project in Spain. The radioactive material will be essential in helping the nuclear sector pick up some of the slack from reduced oil and gas demand.

Berkeley hopes that Salamanca will produce 4.4m pounds of uranium a year when it is up and running. That’s equivalent to a tenth of Europe’s total current usage. This penny stock is packed with potential, though remember that any issues developing the mine and getting production up and running could decimate profit targets and cause problems with project funding.

Protect and serve

I believe Corero Network Security (LSE: CNS) could deliver mighty shareholder profits as the digital revolution rolls on. As the name suggests, this tech share specialises in protecting users from cyber attacks. And more specifically, Corero provides defence from distributed denial of service (or DDoS) attacks. These are the attacks that bombard a website with large data requests that exceed site capacity and cause a crash.

Cyber attacks have been around for decades but the number is growing particularly strongly today. That’s thanks in parts to the rapid rise of state-sponsored electronic warfare to take down companies and government installations. Smaller operators like Corero will have to paddle extremely hard to survive alongside major industry players like IBM and Microsoft. But the rate at which this industry is growing still suggests this could still be a top penny stock to own.

Unlike other businesses, which are making a lot of progress developing ideas in technology, AFC has its tech out there on the market, and it is generating a lot of press.

This does not guarantee that the business will be able to outperform its peers. Neither does it guarantee that the technology is better than anything else out there on the market.

However, the publicity the company is generating with its initiatives, such as the partnership with the Extreme E racing series, should help increase awareness of the band, which could ultimately lead to additional sales.

And the business has more partnerships in the works.

Promising stock

Over the past couple of months, AFC has noted a significant increase in enquiries from customers in the construction sector. The government is withdrawing the red fuel subsidy for the construction sector, which will dramatically increase fuel costs for the industry.

The aim of this strategy is to reduce diesel consumption in the construction industry. Companies are now looking for alternative ways of generating energy.

AFC’s hydrogen fuel cell technology is one option.

It has been working with engineering contractor Keltbray for months to assess the capabilities of its technology. The contractor has now placed an order. It will be deployed at one of Keltbray’s construction sites, likely in London in the second quarter. Further deployments could follow later in the year.

This could be the first of many agreements in the sector for AFC. The arrangement between Keltbray and AFC could be instrumental in proving to the rest of the construction sector that hydrogen is a suitable alternative to hydrocarbon fuels.

The agreement will also help AFC commercialise its technology. This should help push down costs for the penny stock, which could ultimately open to new customers. City analysts are excited about the potential of this agreement.

One group of analysts recently put a price target of 195p on the stock, indicating an upside of more than 500%, based on this deal.

AFC Energy outlook

Of course, there is no guarantee the stock will hit this price target. There is a lot that could go wrong for the business in the meantime. Competition in the sector is also hotting up. AFC has the edge over some of its peers today, but the penny stock cannot take its position for granted. A competitor could come along to grab market share at any moment.

Despite this risk, I am excited by the company’s potential. That is why I would buy the penny stock for my portfolio today with an investment of £1k. As the group pushes forward with its partnerships, I reckon further sales growth is on the cards.