Ceres Power Holdings (LSE: CWR) has plunged in value by 62% over the past 12 months. I believe investors have been selling the shares due to growth concerns, which seems short-sighted. I think the company has fantastic long-term potential and would be willing to add the shares to my portfolio as a result.
Renewable energy champion
Ceres Power is one of several early-stage hydrogen companies listed on the London market trying to commercialise green energy technology.
The hydrogen market could become a significant section of the green energy industry over the next decade. The problem companies are trying to overcome is producing hydrogen in a cost-effective, environmentally-friendly manner.
Ceres is a world-leading developer of next-generation solid oxide fuel cell (SOFC) and electrochemical technology. The company has developed SteelCell using SOFC technology. The product enables customers to convert traditional energy sources into hydrogen. The process helps them to reduce emissions and improve efficiency.
The company is licensing its technology to major manufacturers. This business model requires less capital investment upfront and can generate higher returns. Revenue rose 44% in 2021. Management believes this growth will continue in 2022. I see no reason to doubt this forecast as corporations and countries around the world ramp up spending on renewable energy initiatives.
I like Ceres because its technology provides a different option for companies. They can use existing technology to help improve the efficiency of their operations. There is no need to invest significant sums in new infrastructure.
The SteelCell technology can also be used in the existing energy marketplace. As the global hydrogen market is still in its infancy, this is important. A technology that can build a bridge between today’s energy market and the market of the future stands a better chance of success.
Challenges ahead
Despite the company’s opportunities, I think it will also face some significant challenges as we advance. The hydrogen sector is increasingly competitive, and there is no guarantee Ceres’ technology will be the one that firms choose.
At the same time, the company is still losing a lot of money, and gaining access to financing to keep the lights on will be an issue for the business until it can generate its own cash.
Still, despite these headwinds, I believe the stock looks cheap after recent declines. Even though the business is not generating a profit, with revenue growth accelerating, I think it is only a matter of time before it begins to record profits.
Over the next year, the company should report further progress on its collaborations and product development. These developments may become a catalyst for the stock.
As the hydrogen industry begins to gain the recognition it merits, I think this undervalued renewable energy company deserves a place in my portfolio.
Rupert Hargreaves 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.
