The ITM share price is up more than 250% in the last year! Should I buy the shares now?

The hydrogen fuel supplier is yet to make a profit, but investors are buying ITM (LSE:ITM) shares in droves. Is it too late to buy in?

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Clean and renewable energy companies could be among the biggest stocks to watch in 2021 and beyond. As the UK edges towards its 2050 target of carbon neutral emissions, companies both inside and outside the energy sector will have to think about alternative energy usage.

Just last week I picked two green energy stocks that I would add to my portfolio. ITM Power (LSE:ITM) is another renewable company that has seen incredible growth over the last few years. The ITM share price has grown a massive 258% in the last 12 months. That comes during a time when many UK stocks have struggled due to the impact of the pandemic. That growth is more impressive over the last five years. The ITM share price has grown by 4,366% in that time. 

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However, the company saw its stock drop more than 20% following disappointing half-year results last month. So can ITM shares keep growing or was that the beginning of a more significant slump in its fortunes?

Loss making

ITM designs and manufactures products that generate hydrogen fuel, which can be used for vehicles as well as energy storage and industrial purposes. Much like Elon Musk’s Tesla, ITM has generated an impressive market cap of more than £3bn, despite annual revenues of just £3m and widening losses.

Investors have clearly bought into the company’s technology for the long term, anticipating that demand for its hydrogen fuel solutions will grow exponentially in the years to come. With hydrogen set to be one of the main drivers of the 2050 carbon zero goal, I tend to agree that while the company may not be hugely profitable right now, the long-term growth potential is substantial.

Grant income

It is important to examine the risks of buying the ITM share price now, however. The AIM-listed company reported a 16% improvement in its total income for its first half last month, to £4.4m. However, only £0.2m of that was attributed to sales, with the remainder of the income down to grants. Losses from operations widened by 22% to £12m. ITM suffered from delays to some of its installation projects due to Covid-19.

Despite the lack of profits, I think there are reasons to be positive about the potential of ITM to return to profitability in the near future. The company has been engaged by a number of strategic partners to deliver its modular PEM electrolyser tech. These include oil and gas giant Royal Dutch Shell (LSE:RDSB). I think other energy giants may turn to the likes of ITM in an effort to accelerate their own moves towards carbon zero.

There are still doubts about the viability of hydrogen fuel and whether it can be used en masse to power cars in the future. Considering the huge increase in the ITM share price over the last few years, and the fact that doubts remain about its profitability and the long-term viability of its products, I won’t be buying the shares right now.

I will be keeping a close eye on ITM and on the renewable energy sector, in what is likely to be an eventful few years ahead.

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conorcoyle has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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