Why Versarien plc shares could be the buy of the decade
Shares in advanced engineering materials group Versarien(LSE: VRS) continued to fall today as more investors moved their capital away from the company despite its superb performance since November last year with some profit-taking probably happening here.
As long as you are content to sit on your hands however, I think this small-cap could be a buy of the decade.
Since November, the Cheltenham-based business has secured collaborations with a global consumer goods company, a global chemical major and a global apparel manufacturer with the view to incorporating its few layer graphene nano-platelets (Nanene) or graphene ink into its products. These were in addition to the earlier agreement struck between Versarien and Israel Aerospace Industries to test graphene in the latter's aerospace composite structures. Assuming these collaborations prove fruitful, any subsequent contracts could be transformative for the small-cap and lead to a snowball-like effect whereby an increasing number of businesses seek out its high quality, independently verified material.
While most would be more than satisfied with this kind of progress, the company's news flow hasn't stopped there. In mid-January, it was announced that Versarien had signed a letter of intent to establish a China-UK graphene manufacturing centre in the Jinan Innovation Zone, Shandong Province. This will initially involve the British company supplying the intellectual property to its partner, which will in turn provide the 100,000 sq foot facility and equipment needed to produce and sell Nanene. Further down the line, it is intended for the facility to be the heart of the Jinan Graphene Valley, allowing Versarien to establish "a world class base in the Asian region".
While the enormity of this deal could mean that lawyers are left to continue poring over the details for a while yet, investors may not have long to wait for news on other fronts.
The recent opening of a sales office in Palo Alto combined with the appointment of CEO Neill Ricketts to the advisory board of the US National Graphene Association (NGA) are two more encouraging developments. In his own words, the NGA "is at the forefront of promoting the commercialisation of graphene in the United States and more widely". Any indication that Versarien might be about to replicate the agreement between China and the UK over the pond should see the share price power back to and beyond previous highs.
Worth the risk?
Clearly, Versarien won't be to all investors' tastes and nor should it be. Since it's almost impossible to arrive at a valuation using traditional metrics, the company remains a high-risk, speculative play, at least when compared to your typical FTSE 350 stock. Its success depends to a great extent on the widespread adoption of the wonder material which could still be many years away.
Nevertheless, thanks to its almost limitless applications (including batteries, computers, electric vehicles, solar energy and wearable - bendy - technology) there can be little doubt over the potential for graphene to dramatically change the world we live in. And while Versarien's progress will no doubt inspire competitors, the fact that it is rapidly becoming the go-to destination for businesses keen to be early adopters suggests it stands a better chance than most of succeeding.
So long as it's held within a fully diversified portfolio, I continue to regard it as a hugely promising investment.
Like Versarien? You might like this too
The performance of Versarien's shares over the last few months is a wonderful illustration of just how profitable investing in small-cap companies can sometimes be.
If you're looking for the best opportunities lower down the market spectrum, don't leave before downloading a special report from the Fool's analysts on another top small-cap stock; one that appears to be flying under most investors' radars at the current time.
To learn its identity, just click here. Their report is completely FREE to read and comes with no obligation.
Paul Summers owns shares in Versarien. 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.