First, a bit of background: this is a helium exploration and development company. In a similar way to an oil exploration company that’s tapping different sites for black gold, Helium One is aiming to win big with a discovery.

Needing to make progress

The first driver that would help lift the share price is progress in the three major project areas. These are the Rukwa, Balangida and Eyasi projects. The drilling campaign last year delivered what the company referred to as proof of concept. This is positive, but the campaigns this year need to show material progress in order for a potential investor (i.e. me) to be interested.

Personally, I don’t think it needs to get to a commercialised stage of extraction this year to get the share price higher. Progress alone should be enough to cause a spike higher. This is because speculation with a small-cap stock like Helium One can cause a large movement. With a market cap of £55m, it only takes a relatively small amount of buying to trigger a sharp move higher.

In this case, the highs of the year could be a level that’s reached. However, the speculative push could reach any price. It’s very hard for any investor to put an accurate price on where a move could go.

Fundamental drivers

On the other hand, I can take a look at a fundamental reason for the shares to jump. In the latest results, the company generated no revenue. It lost just under $2m for the second half of 2021. This represented a loss per share of $0.31.

Logically, if the company was able to extract helium at the end of this year and generate revenue in 2023, the picture completely changes. For example, if the earnings flipped from a loss to a small profit of $0.01 per share, this would put the price-to-earnings (P/E) ratio at 10.

In the process of achieving this, the share price should move drastically higher. Even if it traded to 20p, the P/E ratio would be 25. This seems very reasonable for this sector that’s characterised by very high P/E ratios.

However, the big concern I have is that the company might never make a profit. The projects are developing well, but there’s a big leap to generating sustainable revenue and breaking even. I really struggle to see the vision for Helium One right now.

I’m happy to be proven wrong, with upcoming results potentially highlighting fresh positive news. Until then, I’m going to stay clear of investing in the stock as I feel it’s too uncertain.

Helium One share price to balloon?

Since the beginning of 2022, the HE1 share price has ballooned up by over 40%. I think this is partly because global demand for liquid helium is estimated to grow at a compound annual growth rate of approximately 3%. In addition, the company has three major projects in Tanzania, including its Rukwa project, which is one of the largest known primary helium resources in the world.

I believe the Helium One share price will be greatly impacted by an increase in demand for applications where other gases cannot be substituted. Purging is one of those applications: at 6% of Helium One’s market, I think the demand for purging is likely to increase as the space industry is forecasted to grow. Superconductivity and basic laboratory research are also applications where helium has a unique role to play.  

In contrast, many applications do not require the unique properties of helium to achieve the desired result. For example, welding, which makes up 17% of the Helium One market, is replaced by argon in Europe, while the United States uses helium. Also, fibre optics manufacturing at 6% of its market can often be substituted by hydrogen, as high thermal conductivity is the key property for this use case. In these examples, economics, safety, and legislation can influence the choice of using helium or other gases.

HE1 share price concerns

Helium One burnt a little over £5m of cash last year, which was approximately 8% of the company’s market value. Despite its fairly solid cash runway, I believe many investors will be concerned about how easily it could raise more cash.

I think another concern is the fact that the Helium One share price declined over 60% in less than a year, and its net income declined by 113.7% in 2021. This helps explain the roller-coaster journey for the Helium One share price over the last few years.

The Helium One share price exploded up like a rocket by 294% from the start of 2021 to 2 August. From here, however, the balloon burst and its share price dropped 82% within the month! Overall, I regard Helium One as a speculative exploration company that requires high-risk tolerance. However, I believe it has improved its commercial model, therefore I’ll be watching Helium One shares very closely before I decide whether to take the plunge and add them to my portfolio or not.

• In the annual report for the 12 months to 30 June 2021, losses widened from $2.26m to $5.16m
• The cash balance increased from $212,132 in June 2020 to $15.8m the following year 
• Helium has many commercial uses, including as a cooling agent in MRI scanners

Operating exclusively in Tanzania, Helium One Global (LSE:HE1) engages in the exploration of the noble gas helium. With many potential commercial uses, helium is one of the lesser-known commodities. The company is currently working on two projects, Eyasi and Balangida, and Rukwa. I want to know if I should buy at the current HE1 share price and add the firm to my long-term portfolio. Let’s take a closer look.

Recent results and the HE1 share price

Helium One is still a young public company. It only listed in December 2020. In the past year, the HE1 share price is up around 37%, and it currently trades at 10.5p. In its annual results for the 12 months to 30 June 2021, the firm reported a loss before tax of $5.16m. This was an increase from $2.26m the previous year. This is not unusual for an early-stage business, with significant funds required for exploration.

In the report, Chairman Ian Stalker stated the Rukwa project had “good quality reservoirs”. I will be watching closely to see how much helium it yields. It should be noted, however, that companies engaged in explorative operations carry the risk of yielding disappointing results, or even nothing at all.

On the other hand, the business carried out two fund raises in 2021, both of which were oversubscribed. These collectively raised around $21m. While this is positive news, I can’t help but feel there is further possibility of dilution, given the funding required for exploration.

Furthermore, the firm’s cash balance stood at $15.8m in June 2021. This was an increase from $212,132 the previous year. 

Searching for helium

It makes sense to briefly look at the commercial uses for helium, given this is the company’s only market. MRI scanners require helium as a cooling agent. In addition, it is essential for weather balloons, high-tech manufacturing, and in the digital revolution. What is also clear, according to the company, is that it is in short supply.   

In a 17 January 2022 operational update, the firm stated that it found “multiple additional surface helium anomalies”. In essence, this means that satellite technology detected the potential presence of helium in more areas of the project than originally thought.

The firm conducted this investigation over a 4,500-square-kilometre area. If helium is confirmed, therefore, I think this would have a very positive impact on the HE1 share price.   

While this is a company engaged in an interesting market, I won’t be speculatively buying at the current HE1 share price. I want to see solid results from future operational updates. I will watch progress very closely.

Over the past year, the shares show a gain of 54%. But it has been a rollercoaster journey along the way. As the Helium One share price has been falling in recent days, could this be a buying opportunity for my portfolio?

Dramatic price swings

Why has the share price seen such big movements this month? Is it the result of a speculative frenzy in the £70m company, or does it reflect improving business prospects?

The shares had already started climbing quickly when the company made an announcement on 17 January that I think boosted investor sentiment further. It revealed that a study had provided heat-map data across the company’s licensed areas. The results showed anomalies across various parts of the estate, suggesting the potential presence of helium.

A lot of hot air?

That may sound promising. But I am not persuaded that this news improves the investment case for Helium One.

For example, the company reported “multiple surface anomalies identified within all three basins that require follow-up geophysical investigation”. What does that actually tell me as an investor? It gives me no sense of the possible sense or value of the helium. Nor does it mean that Helium One could extract any gas and get it to the market profitably. On top of that, the conclusion is basically that more investigation is needed. That suggests these preliminary results could yet turn to disappointment when more investigation is done.

Commercial model

If more work is done it could also end up leading to a need for new capital. As the company noted last month, it is “well funded for current exploration activities”. I take that to mean that the business that has no commercial revenue is spending money in an exploratory phase. If it finds significant helium and wants to exploit it commercially, it may need to raise more money by diluting existing shareholders.

If the exploration is ultimately fruitless, what will Helium One shareholders actually own? After all, the business case is all about helium. If the company’s plots do not allow for commercial helium extraction and sales, the reason for the existence of Helium One will be called into question. Like most early stage exploration companies, I see this as a speculative business model. An awful lot depends on exploration and feasibility studies that could come to nothing.

Things might turn out better than that. If further studies show the company’s license area is rich in helium it could profitably extract, the business model could turn out to be lucrative. That could support a higher Helium One share price.

My action plan

For now though, I have no intention of buying Helium One for my portfolio. I see it as a speculative exploration company and so far am unpersuaded by its commercial prospects. Lots of gas production companies are already highly profitable and have broadly diversified asset bases. I would consider adding firms like that to my holdings before Helium One, no matter how low its share price falls.

What caused the share price to crash?

As a reminder, Helium One is an early-stage exploration company. And as the name suggests, it’s focused on finding and eventually extracting helium from the ground. The element has a wide range of applications in the medical and aerospace industries. But despite its abundance in the universe, helium has proven to be quite a challenging gas to get hold of. That’s because it rarely exists in deposits large enough to be economically viable to dig up.

So, I think it’s understandable why investors got excited when the company announced it had discovered a deposit with 138bn cubic feet of the stuff. This announcement seems to be the primary catalyst that drove the Helium One share price to as high as 29p last year – a 250% rise since the start of 2021!

However, a risk I pointed out back in May was the possibility of disappointing results from further tests. Lo and behold, that’s precisely what happened. Drilling tests at the Tai-1A well confirmed the presence of helium. But petrophysical analysis showed it didn’t exist as free gas and therefore cannot be extracted. Meanwhile, its second drilling site, Tai-2, could not confirm the presence of high-grade gas.

Needless to say, since Helium One’s share price was entirely elevated by expectations rather than fundamentals, these disappointing results were enough to send the stock crashing. But why is it now back on the rise?

Time for a comeback?

History likes to repeat itself. And that seems to be what’s happening with this business. Since the start of 2022, Helium One’s share price has climbed 78% so far.

The company recently completed a multispectral satellite spectroscopy study of the region it’s exploring. And in the 4,500 sq km area, multiple helium anomalies were detected that could be viable for extraction. The next stage is to start drilling to get more data on the quantity and quality of the gas.

The results are expected to arrive at some point in 2022. If they end up being positive, it’s possible that the Helium One share price could be on the verge of exploding even higher than in 2021. But of course, the complete opposite could happen as well.

Final thoughts

Investing in young exploration companies is fraught with risk. Just looking at the recent history of the Helium One share price is proof of that. But for investors willing to take that risk, the rewards can be enormous.

Personally, I’m not keen on speculating with my portfolio. For now, I’m going to wait and see what the drilling results look like before making a move.

Recent developments 

Since listing, the Helium One share price is actually up almost 100%. For those investors who got in at the beginning, I can see why it was an attractive proposition. However, those who jumped in a month ago would currently be nursing an unrealised loss of around 67%.

The main reason for the slump was two negative trading updates regarding the exploration and results of sites for potential helium. The projects are referred to as Tai-1 and Tai-2. The first of these did locate a helium system, but without any free gas. Tai-2 was less positive, with the drilling campaign finishing without locating any helium gas.

The results of the two updates were two large, sharp falls in the Helium One share price over the course of the past month. From levels around 28p a month ago, it now trades at 9p.

I don’t need to be a genius to figure out that if the company can’t find helium in the sites it’s exploring, the business isn’t going to survive for long. I accept that helium has a lot of great commercial uses. It’s also a non-renewable resource, meaning that the price should rise as supply falls. But if the gas can’t reach the market, Helium One won’t be able to tap into any of this.

Concern over the Helium One share price

Looking forward, the company does have a lifeline. It’s beginning phase two of exploration, with positive remarks about the significant new data it now has. If the company can find helium in further exploration, then this would be the turnaround needed to support the share price.

Even though the business hasn’t reported any revenue, it does have £10m worth of cash funding to help pursue future projects. I don’t know how long this money will last with a cash burn rate and no incoming revenue. Yet now that Helium One has gained valuable information from the first two campaigns, I would expect it to be able to be a lot more targeted going forward.

If the business does find what it needs in the next campaign, the share price could move back higher. But I’m not expert in this field. I also don’t have enough information to work out how long it can survive without finding anything. In my eyes, this makes an investment like a flip of a coin. With a 50/50 chance, I wouldn’t see this as an investment worth pursuing for my own portfolio and so will be steering clear.

The firm announced it had failed to discover any meaningful amounts of helium at its flagship Rukwa project. While the company’s still looking, it could have done with an early win. Investors now face the progress of a long, drawn-out exploration programme.

The early failure also raises the prospect that the company will run out of money. Helium One has around £10m of cash to keep drilling. Unfortunately, this cash is unlikely to last long. 

Further, the group has no room for manoeuvre. Additional delays, or a higher than expected drilling bill, could scupper its plans. 

That said, while the company was unable to identify any meaningful amount of helium at its first prospect, helium was present. This suggests there’s a chance the enterprise could encounter a significant resource at its next well. And if it does, the outlook for the Helium One share price could improve substantially. 

Helium One share price potential

Helium gas is in short supply around the world. Everything from magnetic resonance imaging (MRI) machines, to semiconductor manufacturing and car airbags, use the element. 

As supply has failed to catch up to demand in recent years, helium gas prices have increased. Rising prices haven’t disturbed demand, and a shortage is growing. In 2020, some operations were forced to shut down as helium shortages persisted. 

This backdrop is the reason why I wouldn’t give up on the Helium One share price, if I already owned it. However, I never acquired the stock because I thought it was just too risky. 

Risk versus reward

The problem with investing in early-stage exploration companies is the fact that they’re incredibly challenging to value. Not only is it impossible to establish how much the resource could potentially be worth, as it hasn’t yet been found. But it’s also impossible to establish whether or not explorers will ever discover the resource. 

Therefore, it’s challenging for me to place a value on the Helium One share price. This means it’s almost impossible for me to work out if the stock can ever recover to its all-time high of around 28p, reached at the beginning of August. 

There’s just too much uncertainty surrounding the outlook for the company for me to try and place a value on the business. With that being the case, I’d not buy the stock for my portfolio. I think the risks of investing outweigh the potential rewards. 

Still, some investors may be comfortable with the level of risk involved here. Indeed, considering the fundamentals of the helium industry, Helium One’s prospects could dramatically improve if the company does discover some of this valuable gas.

And if it does discover some of the gas, I think the stock could recover from recent losses. But this is far from guaranteed. Even in the best-case scenario, it could be a long time before the shares regain their lofty highs. 

Several popular shares crashed in August. I’ve been taking a fresh look at three of these companies to see if I think they offer buying opportunities.

Down 57%: this isn’t a game

Spot the ball competition operator Best of the Best (LSE: BOTB) is known for the expensive cars it offers to winners of its weekly contests. Profits tripled last year when players were stuck at home in lockdown. But August was a bad month for this company.

BOTB shares fell by more than 50% in one day after the company said that falling sales and rising costs mean that profit for the current financial year is expected to be 62% below previous broker forecasts.

Unsurprisingly, the company says that some customers are playing less now that Covid-19 restrictions have been lifted. Alongside this, advertising costs to attract new customers have risen by up to 60%. As a result, fewer new players are being signed up.

Many shareholders are also disappointed that the company directors sold £60m of stock in April, just before the problems started. Did they know already?

BOTB shares now trade on 12 times 2022 forecast earnings and the group has no debt. The shares could be cheap, but I don’t think they’ll return to their previous highs. I’m not tempted to buy just yet.

The best UK share to buy now?

FTSE 250 personal protection technology specialist Avon Protection (LSE: AVON) was also a big faller in August. The shares fell by 28% in one day and are now down by 50% over the last year.

The crash was triggered by news that the company — which makes products such as military gas masks and helmets — is suffering from delayed orders and supply problems. As a result, sales will be lower than expected this year.

This is a business I’ve previously rated highly, so I am interested. As far as I can see, Avon’s problems should be temporary. The group is continuing to win new work with key customers such as the US military and management is confident that “delayed orders will be received over the coming months”.

Avon shares now trade on around 19 times 2022 forecast earnings, with a 1.7% dividend yield. That seems about right to me — Avon previously looked very expensive, in my view. I’d like to own the shares, but I’d like to get them a bit cheaper, so I’ll hold fire for now.

Disappointing drilling data

The final stock I’m looking at is explorer Helium One Global (LSE: HE1). Shares in this small-cap fell by nearly 70% last month after the company reported disappointing drilling results from its Rukwa project in Tanzania.

Chief executive David Minchin says that the company has now ended its 2021 drilling programme and is working on plans for 2022. I think there’s still some potential here, and fortunately Helium One still has £10m of cash on hand.

However, small explorers with no revenue are always high-risk speculative investments. These early disappointments have made me even more cautious. I certainly don’t think this is one of the best shares to buy now — I think the shares could have further to fall. I’m not buying.

Why are investors buying Helium One?

So why such interest? It’s a good question, particularly given the recent performance of the shares.

On 23 August, Helium One’s stock traded for just under 17p. By the end of play on 27 August (last Friday), the share price had tumbled to just over 9p. At one point during the week, the stock was down as low as 6p. That’s only marginally above what Helium One’s shares traded at when they first arrived on the market at the end of 2020. 

As is often the case with junior stocks in this sector, with the collapse in price often attributed to a disappointing exploration update. My Foolish colleague Roland Head covered the less-than-ideal news on the firm’s Rukwa project last Thursday. 

A fall of 46% in such a short space of time is sobering. So is there anything that attracts me to Helium One shares? Actually, yes.

In short supply

Right now, helium supplies are running low. Yes, that means fewer birthday balloons. However, a far more important use of the element is for cooling magnetic resonance imaging (MRI) machines. These use radio waves and magnetic fields to create internal images of body parts. Through this, medical staff are able to diagnose and monitor conditions. This is clearly vital work. Moreover, the reduction in helium supply couldn’t come at a worse time given the delays caused by Covid-19.  

There’s another problem. Helium’s status as an inert gas means it’s also used in the manufacture of semiconductors, helping to prevent any unwanted chemical reactions. Unfortunately, the pandemic has accelerated a shortage of these chips which are now ubiquitous in everyday tech.

And these are just the near-term headwinds. Put it all together and the helium price should remain strong. This could leave HE1 in a sweet spot if it can find and extract enough gas. 

Dilution likely

Despite all this, it seems clear to me that the stock will likely remain a risky pick as drilling continues. All it takes is a bit of poor weather to halt progress.

On top of this, drilling campaigns are rarely cheap. HE1 has £10m in cash, at least according to management, but I suspect the need for more funding is pretty much nailed on. And capital raises would only serve to dilute any stake I owned.  

I also feel the need to question whether all this is, to borrow an expression from billionaire Warren Buffett, beyond “my circle of competence.” Do I possess sufficient knowledge of this (unprofitable) company to give me an edge over other investors?

If not, buying some Helium One shares today would be a speculative punt. That’s fine and it could pay off brilliantly. But it’s not investing.  

Better buy

Helium One has likely made some of its early owners wealthy. There’s a possibility it could still make great money for those investors buying in last week. For me however, there’s simply too much risk involved.

If I were to buy a penny stock, it would almost certainly be more of this one.  

The Helium One share price crashes followed a spectacular run-up from April through to early August. It’s time to find out what has been going on.

Looking for Helium

Helium One holds 4,512 square meters of prospecting licenses across three project areas in Tanzania: Rukwa, Balangida, and Eyasi. In all three areas, helium has been found bubbling up from the ground. Helium forms underground but will escape up into the air unless the geology in the area traps it. All three sites have the right kind of geology that could form reservoirs of helium to be mined, and helium is a valuable commodity.

The Rukwa project is the largest and most advanced of the three. Helium One shares hit the AIM market of the London Stock Exchange in December 2020 at 5.88p. Floating on the stock market raised £6m to fully fund an exploration programme of high priority prospects in the Rukwa project. Helium One raised a further £10m in April 2021, to allow appraisal work to follow the exploration programme at Rukwa immediately.

Bubble bursting

For much of the time between listing and April 2021, the Helium One share price was range-bound. Its price moved between 6p and 9p per share. In early April, it started to climb — perhaps the positive interim results released on 29 March 2021 was the catalyst — reaching a high of 29p in late July 2021.

Then, on 11 August 2021, the Helium One share price dropped by 50%. That was the same day a report that drilling at an exploration well in the Rukwa project had been completed. Although thick claystone was identified, which could act as a seal over a helium reservoir, the drill hole deteriorated before deep analysis could be done. A helium reservoir has not been ruled out, but nothing worth mining was identified at shallower depths.

After a brief recovery, the Helium One share price collapsed by about half again yesterday. The company completed exploratory drilling at Rukwa. Although the geology at the Rukwa project looks promising, and there is definitely a lot of helium gas around, Helium One has not identified a proven reserve to mine. 

What’s next for the Helium One share price?

The company is planning to begin the second phase of exploration. There is £10m of cash on the balance sheet to start phase two at Rukwa, before the seasonal rains start in November 2021. I have to assume the £6m raised on floatation has been spent. The £10m in cash is presumably what was raised to start the appraisal process. Now it will start being consumed in further exploration. I expect Helium One to raise more funds to start developing any reserve if one is found.

I would buy Helium One at this price, which is just about where it was before the run-up began. If a large reserve of helium is found, then the Helium One share price should move higher. However, this is a highly speculative share. I have to be aware that no viable reservoir of helium may be found in the second phase of exploration, the search could go on for some time and it could come up empty-handed.