Despite the Helium One (LSE:HE1) share price delivering a return of 60% over the last 12 months, it hasn’t been a smooth ride. In August last year, the stock plummeted by over 65%, leaving a bitter taste in shareholders’ mouths. Yet since the start of 2022, the Helium One share price has been back on the rise. What’s behind all this volatility? And should I be considering this young business for my portfolio?
What caused the share price to crash?
As a reminder, Helium One is an early-stage exploration company. And as the name suggests, it’s focused on finding and eventually extracting helium from the ground. The element has a wide range of applications in the medical and aerospace industries. But despite its abundance in the universe, helium has proven to be quite a challenging gas to get hold of. That’s because it rarely exists in deposits large enough to be economically viable to dig up.
So, I think it’s understandable why investors got excited when the company announced it had discovered a deposit with 138bn cubic feet of the stuff. This announcement seems to be the primary catalyst that drove the Helium One share price to as high as 29p last year – a 250% rise since the start of 2021!
However, a risk I pointed out back in May was the possibility of disappointing results from further tests. Lo and behold, that’s precisely what happened. Drilling tests at the Tai-1A well confirmed the presence of helium. But petrophysical analysis showed it didn’t exist as free gas and therefore cannot be extracted. Meanwhile, its second drilling site, Tai-2, could not confirm the presence of high-grade gas.
Needless to say, since Helium One’s share price was entirely elevated by expectations rather than fundamentals, these disappointing results were enough to send the stock crashing. But why is it now back on the rise?
Time for a comeback?
History likes to repeat itself. And that seems to be what’s happening with this business. Since the start of 2022, Helium One’s share price has climbed 78% so far.
The company recently completed a multispectral satellite spectroscopy study of the region it’s exploring. And in the 4,500 sq km area, multiple helium anomalies were detected that could be viable for extraction. The next stage is to start drilling to get more data on the quantity and quality of the gas.
The results are expected to arrive at some point in 2022. If they end up being positive, it’s possible that the Helium One share price could be on the verge of exploding even higher than in 2021. But of course, the complete opposite could happen as well.
Final thoughts
Investing in young exploration companies is fraught with risk. Just looking at the recent history of the Helium One share price is proof of that. But for investors willing to take that risk, the rewards can be enormous.
Personally, I’m not keen on speculating with my portfolio. For now, I’m going to wait and see what the drilling results look like before making a move.
Zaven Boyrazian 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.
