Advanced materials group Versarien(LSE: VRS) has excited the attentions of investors in recent months after its share price quadrupled from 21p to 80p in just a fortnight. Everybody loves a three-bagger, but the problem is most people love them too late. Does it still have millionaire-maker potential?
The right stuff
My colleague GA Chester made a good job of explaining why Versarien flew to the skies in his recent article. Briefly, in November and early December it announced new partnerships with an unnamed global consumer goods company and US-headquartered global chemicals supplier, plus ongoing advanced negotiations with several multinational companies across various sectors. It is all down to the magic word graphene.
Versarien uses proprietary materials technology to create game-changing engineering solutions for blue-chip companies, for use across a broad variety of industry sectors. The quality of its graphene, coupled with its research capabilities in the universities of Manchester and Cambridge, is attracting interest from multinational blue-chips, who are keen to commercialise its developments.
Funds, funds, funds
Versarien also successfully raised £2.9m in November to fund its expansion. The fundraising, which was oversubscribed, was a welcome boost given its dwindling cash balance. This fell from £1.51m on 30 September 2016 to just £350,000 last September.
Versarien recently published a buoyant set of interims, showing group revenues rising 167% to £4.38m, up from £1.64m in the first half of 2016. Its loss before tax almost halved from £1.47m to £770,000. Net assets totalled £5.72m, up slightly from £5.14m in 2016. My worry is that investors are putting a high price on future success with the AIM-listed company's market cap a pretty meaty £92m. Given that it has been recently making a loss, and was down to its last £350,000, there is a lot of hope built into that valuation.
The group's fortunes are also dependent on the success of its own clients. For example, it has a collaboration with CT Engineering in the aerospace industry, which was exposed to the recent decline in the oil and gas sector. This had a knock-on impact on Versarian's revenues in 2016, which fell from £2.36m to £1.66m as a result. However, with the oil price climbing, its prospects now look brighter.
Versarian recently launched a promising collaboration with Israel Aerospace Industries to supply and test its proprietary Nanene few-layer graphene nano-platelets in aerospace composite structures, and it opened a US sales office in Palo Alto to exploit significant opportunities in the region.
Versarien is progressing on a number of fronts, and the future looks promising. The share price has dipped slightly following recent excitement as investors take profits and await the next announcement. Currently, it trades at 63p. You could wait for further news before committing funds, but the problem is that if the news is good the share price may spike before you have time to click 'buy'. It will be riskier buying today, but potentially more rewarding if your nerves can take it.
What really counts right now is commercial opportunities offered by graphene. That is hard for outsiders to judge. Probably one for your watchlist, rather than to dive into today.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.