Key points

• AFC Energy’s stock price is down over 54% year to date.
• In April 2021, there was fundraising of £36m.
• The group expands its addressable market beyond electric vehicle recharging stations. 

The AFC Energy (LSE:AFC) share price is down over 63% in the past year. In 2022 alone, the stock has fallen over 54%. Undoubtedly, losing more than half an initial investment has been a tough time for investors who bought at the top. But is this just a temporary bump on the road for this UK alkaline fuel cells provider, or is there a larger issue at play?

How is the business doing?

In 2021, AFC Energy successfully raised funds to beef up its financial position. The total revenue of the company was £592,800. This capital inflow gave AFC a robust platform for product development plans to improve its business strategy and hydrogen power generation technologies. As a result, the company was able to have an unrestricted cash flow of £55.4m at the end of the year.

Despite this, profitability is still not in sight, with a loss for the year landing at £10.4m. In fact, AFC Energy had a 1.33p basic share loss per share. Apart from that, the cash absorbed by operation investing activities increased. The excess cash absorption can be linked to the upgrade of their facilities to create a quality and quantity team and production road map.

Meanwhile, the company entered into a strategic partnership with ABB. The intention is to support the accelerated development of solid membrane-based alkaline fuel cell systems and maximise the electrical efficiency of its alkaline fuel cell technology. This led to the commissioning of the commercial scale ammonia cracker to help generate clean electricity at a higher financial efficiency.

Overall it seems investors are getting increasingly concerned about the negative bottom line. And is undoubtedly a contributing factor to the decline of the AFC share price. But from an operational point of view, the business is making some significant progress in my eyes.

Can the AFC Energy share price bounce back?

The stock market appreciates companies that show strong fundamentals and grow over time. Although the group has a reasonable balance sheet, AFC Energy shares have not done so well. In fact, an investor would have burned over 60% of cash invested in the stock over the past year.

But with its list of international partners continuing to expand and governments heavily investing in renewable energy infrastructure, demand for the group’s battery technology doesn’t seem to be declining. In fact, it’s the complete opposite.

Today, AFC is deploying its fuel cell system at recharging stations for electric cars, construction sites, and as a source of temporary mobile power. But in the future, management is targeting new markets like ports, onboard ocean vessels, data centres, and even railways.

Assuming its strategy is successful, the revenue stream, in my opinion, has a long way to grow, especially as the firm gains more distributors. And that’s obviously a catalyst to drive the AFC share price upward in the long term.

Risks surrounding the AFC share price

Despite my high hopes for AFC Energy, I am still cautious. The company has a lot of operations going on as it transitions from a research & development-based company to a commercial one. There are different experiments and partnerships to be done by the group, which will be capital intensive. In fact, we’re already setting this with the rise of its capital expenditures. On top of all this, the company is far from being profitable, at least the numbers say so.

From the foregoing, it can be said that AFC Energy is still a work in progress. While I think AFC’s share price has the potential to bounce back, I feel investors will have to remain patient.

No doubt, renewable technology is seen as the future of energy. With the recent investments in the company, AFC energy has shown seriousness toward riding on the energy transition. Where it can meet demands, the AFC share price could not only bounce back but may skyrocket.  

That’s why, despite the high degree of risk, I am considering opening a small speculative position for my portfolio today.

Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.