Not many ASX lithium shares are as divisive as Vulcan Energy Resources Ltd (ASX: VUL). But, with many of its critics toting the company as both hopeful and exciting – albeit a long way from profitability – I'm holding onto my Vulcan shares.
The $1 billion S&P/ASX 300 Index (ASX: XKO) lithium developer differs greatly from its ASX peers. It aims to produce the battery-making material while maintaining a net zero footprint.
The company plans to use renewable energy from its geothermal and lithium brine resource to power its production.
Additionally, the resource is located in Europe, where lithium resources are few and far between and demand for the material is expected to surge.
Finally, the company aims to sell geothermal energy to the grid, thereby reducing Europe's reliance on Russian energy.
After all that spruiking, some might think Vulcan Energy sounds like the market's best-kept secret. But that's likely not the case.
Unfortunately for investors like myself, the Vulcan Energy share price has struggled in recent times. It has dumped 31% year to date and 42% over the last 12 months to trade at $7.50 today.
While there are plenty of reasons to be cautious when it comes to the lithium share, I'm still hopeful.
The ups and downs of my investment
My investment in Vulcan Energy was my first ASX share purchase. It's likely no surprise, then, that I've learnt a lot in my time holding the stock. If I could have that time again, here's what I'd want to know.
Plenty of ASX 300 shares are yet to turn a profit, but red balance sheets bring additional risks. And as Vulcan Energy isn't yet producing, the company is far from profitability.
Sentiment for unprofitable companies generally shifts alongside market conditions. Inflationary environments are particularly likely to turn the market away from companies operating in the red.
Investors should, therefore, be prepared to approach unprofitable stocks with realistic expectations of the potential volatility involved.
Additionally, the company's flagship Zero Carbon Lithium Project represents a world-first. Meaning there is plenty of potential for the company to experience major challenges along its journey to production.
Finally, since Vulcan Energy was targeted by activist short seller J Capital in October 2021, the company's short position has increased more than 500% to sit at 6.6% at last count.
That seemingly means the market is more pessimistic on the stock than it once was. While Warren Buffett encourages investors to ignore the crowd, such pessimism can be hard to stomach.
I'm still bullish on Vulcan Energy shares
With all that considered, I'm still happy with my investment in Vulcan Energy shares. And I'm not alone in expecting a bright future.
Broker Alster Research has tipped the stock to reach $20, representing a potential 167% upside.
Meanwhile, Medallion Financial Group's Philippe Bui admits to being bullish on lithium, telling The Bull the company's technology is "exciting". However, as Bui prefers producers, he slapped Vulcan Energy shares with a sell.
Such sentiment was earlier heralded by Red Leaf Securities' John Athanasiou, who said, courtesy of the publication:
In our view, favourable potential exists for Vulcan Energy to become a lithium producer with a zero-carbon footprint … Market sentiment has firmly moved towards conservative profitable operations. We prefer other stocks until sentiment towards risk improves.
Vulcan Energy shares are a complicated investment and will likely experience ups and downs in the coming years, but I plan to stick around for the long haul.
