Should I buy this fastest-growing stock on the FTSE 250?
The smaller-cap FTSE 250 index is a treasure trove hiding some of the top growth stocks in the UK. Their smaller sizes mean the share prices move more easily, sometimes as much as 100% in just one month.
That’s what recently happened with Ceres Power Holdings (LSE: CWR), up 50% this month and over 100% since early October.
I could curse myself for not buying the shares earlier, but honestly, this lesser-known hydrogen producer wasn’t even on my radar. So why did it just take off and, more importantly, will it keep going?
A clean energy specialist
Ceres Power Holdings is a British clean energy technology leader. It specialises in solid oxide fuel cells (SOFCs) and solid oxide electrolysis cells (SOECs) for hydrogen production and power generation.
Unfortunately, I’m not a chemical engineer so I can’t claim to understand much of the details. But essentially, the business is all about decarbonisation and clean energy. In my view, initiatives like this are only going to gain popularity as more nations pivot towards renewable energy.
Despite its small size, Ceres is reportedly at the forefront of this transition, with breakthrough technology rivalling conventional manufacturers in terms of efficiency and cost.
It aims to bring green hydrogen production costs down to $1.5/kg, making it cost-competitive with fossil fuel alternatives by 2026. Considering that high cost is a key issue for renewable energy implementations, that would be a huge win.
But that’s not why the shares soared over 100% this past month. The real win came from a deal with one of the world’s hungriest energy consumers.
Powering AI
Unsurprisingly, the main reason for the boost is linked to artificial intelligence (AI) — in particular, AI in China. Last week, the shares surged after further details emerged regarding a fresh licensing agreement with Weichai Power — its largest Chinese shareholder.
Weichai will manufacture Ceresâ SOFCs and stacks for stationary power and data centre applications in China, directly addressing the massive energy requirements driven by the rapid growth of AI infrastructure.
The ‘powering AI’ narrative, combined with the promise of recurring licensing revenue, catapulted the stock to new heights. It’s now the top-performing stock on the FTSE 250 over the past six months.
So the question is: are the gains now priced in â or could it keep going?
Fundamentals and valuation
The valuation now looks understandably stretched, with a price-to-book (P/B) ratio of 5.78. That’s very high compared to sector peers but reveals confidence in future growth.
Encouragingly, its balance sheet looks healthy, with low debt of £78m, strong equity, and a growing asset base.
In 2024, revenues more than doubled to £51.9m, with gross profit rising substantially to £40.2m. Most promising were overall losses narrowed to £28.3m from £54m a year prior, demonstrating progress toward break-even as new contracts pour in.
Overall, I think Ceres Power is a growth stock with excellent long-term protentional. However, the best short-term gains are probably behind us. What’s more, the high valuation could lead to short-term volatility.
Still, for investors keen on both AI and green energy exposure, it’s a compelling stock to consider. It’s certainly one I’ll be keeping a close eye on, with an aim to buy in 2026 if the Weichai deal delivers on the hype.
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Mark Hartley 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.
