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central potash (LSE: KP2) is one of the most popular stocks on the stock market today. When I last covered it at the end of June, it was trading at 1.2p. Today, however, it stands at 3p, 150% more!
Should investors consider buying this stock given its incredible momentum? Let's discuss.
A game about the growing world population
First, let me give you a brief summary of what this company does.
Kore Potash is, as its name suggests, a UK-based potash company that is developing assets in the Republic of the Congo. Potash is a key nutrient for plants and will be crucial to feeding the world's population in the coming decades. This company aspires to be one of the lowest cost suppliers worldwide.
Currently, the group is working on two key projects called 'DX' and 'Kola'. And it is in talks with the Chinese construction power. PowerChina on an Engineering, Procurement and Construction (EPC) proposal for the latter.
A risky action
Now, in my view, this action is very speculative in nature. Currently the company, which has a market capitalization of just £155m, has no revenue or profits so there is a chance it will need to raise capital from shareholders at some point in the future and this could push down the price of the shares.
These companies often face operational setbacks when developing their projects. These setbacks can be very frustrating for investors as they can lead to share price weakness.
Potential for big profits
That being said, risk and reward are directly related in investing. And in this case, there is a chance to get substantial rewards in the future.
The fact that PowerChina can be a key partner for the Kola project is a big deal. PowerChina, a Chinese state-owned company, is an engineering and construction specialist with considerable experience when it comes to large projects. Having this type of company as a partner could eliminate risks and accelerate project development. Therefore, this is very interesting for investors.
It's worth noting that there's no guarantee the two companies will end up working together. But things look promising. In a recent update (September 17), Kore Potash said it met with senior PowerChina officials in Dubai in July. According to the company, both parties have satisfactorily resolved all outstanding commercial points and the agreements are now with the respective legal advisors of both parties for finalization.
Another reason to be optimistic is that the potash market appears to have enormous potential. In the coming decades, the world's population is likely to increase significantly. Therefore, we will need to produce much more food to meet demand. Potash is likely to play a key role due to the fact that it can increase the yield of arable land. That said, I've seen investors get burned by potash stocks before. Sirius Minerals was a company operating in this space and it crashed and burned badly.
Is it worth buying?
Given the risks here, I don't plan to buy Kore Potash shares myself. For me, the risk level is too high.
However, for those with very With high risk tolerances (they are willing to lose 100% of their investment if things go wrong), it might be worth taking a closer look at the stock. There is no doubt that there is a lot of potential here.
