The ITM share price is up 20% since late March and this is what I’m doing about it

Investors choosing not to invest in ITM Power will have missed out on a gain of almost 490% since the beginning of 2020. But should I invest now?

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Should we flirt with speculative stocks such as ITM Power (LSE: ITM)? With my value investor hat on I’d recoil in horror at the suggestion. After all, the underlying business isn’t producing profits. And the current trading year’s revenue near £7m is tiny compared with the company’s hefty market capitalisation of around £2.7bn.

The ITM share price has been tearing higher

However, the ITM share price has been tearing higher. Investors choosing not to take a speculative position in the stock will have missed out on a gain of almost 490% since the beginning of 2020. But recently there’s been a retreat. And today’s share price near 476p is just over 30% lower than the January 2021 peak near 700p.

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Gains that big and fast could have delivered a decent uplift in the value of my portfolio. So maybe there’s room for me to buy a handful of speculative positions in the future. But as part of a risky strategy like that, I’d keep such positions small alongside my larger buy-and-hold stocks and only ‘invest’ money that I’m prepared to lose. And there’s a fair chance I’d lose some of it too!

But as a part of a diversified portfolio alongside more ‘sensible’ investments, I’d consider stocks such as ITM Power. However, I do think timing an investment in speculative positions is key to success. And I won’t throw valuation considerations out the window entirely. The excitement surrounding ITM is because of the progressive nature of the business. The company reckons it’s a globally recognised expert” in hydrogen technologies. And the driving principle behind operations is to convert excess power from national energy networks and convert it into hydrogen.

Well placed in today’s world

The hydrogen produced can then be used to power vehicles, industry and other applications. The industry is “growing rapidly” and there’s a trend towards systems of “ever-larger capacities”. The desire for improved air quality worldwide is driving that demand. And other positive factors include the growth of renewable power generators and the decarbonising of industrial processes.

It’s hard to deny the operation looks well placed in today’s world. And the news feed contains a string of positive announcement demonstrating strong progress collaborating with industry. Words such as ‘transformational’ pepper the narrative. And the future potential of the ITM Power business looks huge, to me.

City analysts expect revenue to rise around 370% and come in near £32m in the next trading year to April 2022. And they think losses will reduce, although the firm will remain unprofitable. There’s still a long way for the business to travel before it gets anywhere near justifying the current valuation. But fast-growing enterprises can gain financial traction rapidly. And the share price may not look as wild at today’s level a few years from now.

Of course, nothing’s guaranteed. The ITM share price could easily decline before the business catches up with the valuation. The stakes are higher now, and I’m kicking myself for missing the boat in January 2020. Nevertheless, the stock tempts me. And with the share price having rebounded 20% higher since late March, I’m watching it closely.  

And I also like this growth proposition:

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And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
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Kevin Godbold has no position in any share 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.

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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