Down 27% in weeks, is the Ceres Power share price a bargain?

Since the first week of February, the stock in Ceres Power (LSE: CWR) has lost more than a quarter of its value. Over the past year, they have almost halved.

But from a long-term perspective, they have done well. If I had invested £300 in Ceres five years ago, my holdings would now be over £1,000, even after the recent share price decline.

So should I add stocks to my portfolio in hopes of future recovery?

Up and down

I think it’s useful to know what caused Ceres Power’s stock price to rise – and what caused it to fall.

At a time when renewable energy stocks have attracted investor attention, interest in Ceres’ hydrogen technology has helped boost the stock. While some of its competitors are closer to ideas on the drawing board than revenue-generating businesses, Ceres has an established client base and sizable profits.

But business development has been uneven. Last year’s revenue was estimated at around £21m, which was down significantly from the previous year. A delay in inking a big deal for deploying Ceres’ technology in China seems to have contributed to investor dissatisfaction at the speed of Ceres’ progress.

The company remains heavily dependent on a few large customers. It also remains a loss. Ceres’ latest full-year results show an after-tax loss of £21m. I expect, when the 2022 results are issued, it will also show a considerable loss.

promising technology

Given its consistent negativity, why does Ceres Power continue to surprise some investors? After all, while Ceres Power’s share price has fallen significantly, the company’s market capitalization of £711m remains substantial.

I think the price reflects three main questions, to which different investors have their own answers.

Will the hydrogen energy market in the future be big? I will, as global energy use remains high and users seek to increase the role of renewable forms.

Second, does Ceres Power have what it takes to do well in this market? Here, I see the answer as a resounding ‘yes’. The company has promising technology. An impressive customer list such as Bosch suggesting that Ceres can also compete in scale on a global stage.

However, the hydrogen energy market is still developing. Ceres technology has put us in a good position for now, but it has a long way to go. It is not clear how the company can adapt and grow as the market matures and competition may increase.

Make money

The third question is one that I don’t think has a clear answer right now. Can Ceres continue to make big profits?

So far, those years have been losses. That is not unusual for young companies as they strive to build a market for their products.

But I’m not yet convinced that the company has a clear path to profitability at a level that would justify Ceres Power’s current stock price. Therefore, I do not clearly see the stock as a bargain and have no plans to add it to my portfolio.