Does a 50% fall make the Ceres Power share price a bargain?

Now I can buy two shares Ceres Power (LSE: CWR) for the same cost as one year ago. Over a 12-month period, Ceres Power’s share price has fallen by 50%.

However, looking at the stock price chart since October, it looks like the stock may have seen its worst yet. Can it be an offer for my portfolio now?

Long-term business prospects

As a long-term investor, I like to buy large companies when their shares are selling at attractive prices.

Ceres Power has an attractive technology platform and can benefit from the increase in demand for renewable energy sources. However, so far the company has been continuously making losses. Last year, it lost £21.4m after tax.

The revenue in the first half of this financial year was lower than the same period of the previous year. The company expects second-half revenue to be in line with the first half. That means that at the full-year level, profits will fall – for the second year in a row. For business growth, it is not impressive.

Falling revenue is expected this year due to the finalization of the key license agreement for the Chinese factory which is more than expected. Licensing revenue can be substantial. That deal – if completed – will strengthen Ceres Power’s investment case, in my view. However, the fact that profits are so affected by a single development makes me feel that Ceres’ business model remains fragile.

At this point, I don’t see this as a great company that I want to invest in.

Ceres Power share price changes

Since I don’t see it as a good company in terms of current evidence, Ceres Power’s share price is irrelevant to me, because I will not invest.

However, a market capitalization of £743m seems high to me for a persistently loss-making company with uncertain sales growth prospects.

At the end of June, the company was sitting on £222m of net cash. That removes any short-term liquidity worries in my view. But as a loss-making company with a history of shareholder liquidations, I see the risk that future fundraising could lead to further liquidations.

Evaluation concerns

Relative to sales, the company seems pricy to me even allowing for a pile of cash.

Lack of profit means that the price-to-earnings ratio cannot be calculated. I think shares seem expensive for what they are. So, based on what we know now, I certainly don’t see it as a bargain.

That can change. For example, the company considers that a prospective Chinese joint venture may be worth “£30 million for Ceres in near-term license fees plus future royalties“. That could be transformative for the company. But right now, I think Ceres’ business as it is is not worth it right now.