There’s been no shortage of positive news from the company so far this year. Over the last couple of months, the enterprise has revealed agreements with audio equipment firm Media Devil, and an unnamed global sports and fashion goods manufacturer. On top of these two significant deals, more recently it has begun collaborating with South Korean-based AXIA Materials, on developing “smart graphene devices” for the buildings and electric vehicles market.

Today, the company has announced yet another collaboration agreement with Advanced Insulation Limited, a leading supplier of advanced construction materials for the oil and gas industry. The first project the partners are planning to work on is incorporating Versarien’s proprietary graphene technology “into sub-sea insulation materials, with a view to improving their tear resistance and reducing water absorption.“

Blue sky potential 

As it signs deal after deal, Versarien is proving to be a hugely rewarding investment for those early to the party. Over the past 12 months, the stock has added nearly 1,000%. Year-to-date, it has gained a more modest, but still impressive, 152%.

And some analysts believe that this could be just the beginning of Versarien’s growth. The wave of deals the company has inked seems to justify this opinion and management certainly seems optimistic about the future. According to CEO Neill Ricketts, there now exists a “global demand” for Versarien’s products.

However, while I cannot deny that Versarien looks to be one of the best ways to invest in the graphene business, I’m sceptical that it will be plain sailing for the firm from here on out. Agreements are one thing, but getting cold, hard cash in the bank is something different altogether. It could be some time before Versarien becomes a sustainable business. In the meantime, finding the money to keep the lights will be a primary concern for the business.

Investor support 

So far, investors have been more than happy to support the group through these early stages. A recent fundraising on the PrimaryBid platform attracted far more interest than management was initially expecting. Even after increasing the size of the offer, it was still oversubscribed and closed early having raised a total of £5.2m.

As long as investor sentiment towards the business remains this positive, I see no reason to believe that Versarien will run into any problems. However, market sentiment can be fickle, and the number of companies that have collapsed after running out of money and losing investor support is frighteningly high.

With this being the case, I’m not ready to go all in just yet. I’m cautiously optimistic about the outlook for Versarien, but I’d like to see self-sustainability before rating it a ‘buy’.

The post Think Versarien’s share price is a bargain? Read this now appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

However, after this initial decline, the Versarien share price has rebounded. At the time of writing, shares in the Cheltenham-based business are changing hands for 126p, down just 4% from yesterday’s close of 132p. 

Revenue growth is key 

The quick recovery should not come as a surprise to Versarien watchers. Today’s results revealed a loss for the year to the end of March, but this was broadly expected. Unfortunately, the loss of 1p per share was slightly larger than the loss of 0.3p expected on revenues of £7.6m. The good news is, Versarien beat on the top line, reporting sales for the year to the end of March of £9m. 

In my view, this top line number is a better reflection of group performance for the period than EPS.

Versarien is working to become one of the world’s leading graphene businesses. As my colleague Paul Summers pointed out last week, year-to-date the company has already signed numerous deals across the globe with partners to help it reach this goal. In total, for the year to the end of March, it signed eight graphene application collaboration agreements, and since the end of March has signed a further five with “more in the pipeline,” according to today’s release. 

As well as investing in these partnerships, the group has also funded new production equipment to scale up production of graphene at its facilities in the UK. This hasn’t come cheap, but I believe it is money well spent.

Huge opportunity 

Even though the market for graphene products is still relatively small today, studies suggest the industry could be worth $1bn globally by 2025. By investing in its business today, Versarien is priming itself to grab a significant share of this market over the next five years. 

However, while I’m not worried about its profitability (or lack thereof), I am concerned by cash burn. 

For the year to the end of March, the group burned through approximately £2.5m in cash. After raising £2.9m in November, at the end of March, bank balances totalled £2.3m, which management believes is enough to meet obligations for the next 12 months. In reality, the longevity of this cash reserve depends on how quickly Versarien can achieve cash flow profitability. City analysts expect the company to report an accounting profit for the year ending March 2019 so, so it looks as if the reserves will be enough, but there’s not much margin for error here. 

Still, with shares in the company flying high, Versarien should be able to raise new funds from investors to keep the lights on if it runs into trouble over the next 12 to 24 months.

Exciting potential

The company’s exciting potential has undoubtedly attracted my attention. The recently reported breakthrough in incorporating graphene nano platelets into power storage devices, increasing the storage capacity of batteries, could be a multi-billion dollar opportunity for the group. This would make a relatively small £3m fundraising seem insignificant in the long term. 

So, considering all of the above, I believe that today’s decline could present an excellent opportunity for risk-tolerant investors to buy into Versarien’s growth story. 

The post Why a 15% fall could mark the right time to buy into the Versarien share price appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share 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.

At the time of writing this conclusion, the shares were trading at just under 40p. Since then, the stock has rocketed to a high of 114p printed at the end of January turning this firm, which has yet to produce a profit into a six-bagger. 

So, would I still buy shares in Versarien today?

Shareholder optimism 

Much of the move higher over the past two months has come as a result of new customer agreements Versarien has signed. 

At the beginning of December, the firm announced that it had signed a deal with a significant US chemicals manufacturer with the intention of letting the two businesses collaborate on the development of new graphene products. Then, at the beginning of January, the company announced an agreement with a global apparel manufacturer to assess the possibility of incorporating graphene into the partner’s products. A few days after this announcement, it told investors it had signed a Letter of Intent to establish a graphene manufacturing centre in China. 

Following all these developments, it is clear that the business is moving in the right direction. Its projects are generating interest and partners are coming to the firm looking to work together on projects that should yield revenues and hopefully profits for shareholders. 

Massive market 

It cannot be denied that these agreements present a considerable opportunity for the company, but the fact remains that this is still an early stage business, and there’s plenty of work to do before Versarien is a self-sustaining entity. 

Still, as I noted in my prior article, if the company can turn itself into a major graphene producer, the opportunity is enormous. The global graphene market is projected to expand to $600m per annum by 2025. If Versarien can grow at the same rate, revenue could hit £177m by 2025 (compared to around £9m annualised currently). As I noted before, this is a highly optimistic forecast. The problem is that after its recent rally, almost all of this growth is now reflected in the share price. 

At the time of writing, the company supports a market cap of £123m (down from just under £170m at its peak), which is 0.7 times 2025 sales. Industrial stocks in general currently trade at an average price-to-sales ratio of around 1.4, which implies that even if Versarien can do £177m in revenue by 2025, the potential upside is only 100%. 

With so much that could go wrong over the next seven years, this risk/reward ratio does not seem attractive to me. With that being the case, I believe that it could be time to dump shares in Versarien after six-bagging in a year. There are other companies out there which offer a much better risk/reward profile. 

The post Why I’d dump Versarien plc after six-bagging in a year appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share 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.