Should you buy soaring growth stock Versarien plc after 100% rise in a week?
Shares in Versarien(LSE: VRS) closed the day at 21.25p on 16 November, yet within a week they'd more than doubled to a high of 44.5p -- at close on Thursday the price had dropped back to 39.1p, but that's still an 84% gain.
So what is Versarien, and what's going on?
The company, which describes itself as an "advanced materials engineering group," produces something called Nanene -- a particular type of 'nano' graphene. Graphene is claimed to be 200 times stronger than steel -- and as it conducts electricity and heat, it has been touted as a replacement for copper wires and for use for circuitry on flexible surfaces.
The stuff sounds like it has great potential, and investor enthusiasm helped create a Versarien share price spike back in April -- though that petered out over the subsequent few months.
Versarien is still in its cash-burn days -- but the firm's fundraising round in early November was very successful. So much so that it was more than twice oversubscribed, and was enlarged to raise a total of £2.9m.
At recent rates of losses that might last around another year-and-a-half, but there's been a big development that could potentially change all that -- on 17 November, the company announced a collaboration with a "global consumer goods company," and that's the day the share price commenced its rapid ascent.
We'd already heard, in Versarien's 3 November, trading update that it was "in advanced negotiations with two of the world's largest consumer goods groups and anticipates receipt of the first purchase order imminently." The latest update expanded that to say it "has now started collaborating with one of them to enable both groups to work together on research, development and testing of Versarien's proprietary Nanene few layer graphene nano-platelets in polymer structures."
As part of that, the as-yet-unidentified new partner has placed its first Nanene purchase order and will use it in polymer structures "primarily for packaging applications, for testing and evaluation, with a view to improving material strength, moisture control and recyclability."
Negotiations are also in progress, we are told, with "a number of other multinational companies" with a view to further collaboration and commercialisation of the product.
But wait a mo...
This might make you want to rush over to your broker and place an order for Versarien shares -- but before you do, you need to be aware of the risks.
Although the global graphene market is predicted to grow from a little over $20m at the end of 2016 to more than $600m by 2025 (and beyond that, who knows -- very possibly into billions), the material is proving hard to commercialise and others firms have not been able to turn it into a big money-spinner yet.
And though Versarien's new partnership deal (especially when coupled with other potential developments) does sound like a significant step forward, there are still many unanswered questions.
Will the commercialisation of the product be successful? How much of the funding for it will each partner contribute? How many ways and by what proportions will future profits be split? How long will it take before large-scale commercialisation becomes a reality? When will Versarien see its first profits? And what further funding (with accompanying dilution) will be needed before that time arrives?
Versarien could be very big, but it's very risky.
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Alan Oscroft 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.