ITM Power (LSE: ITM) shares seem to be out of favour. The stock has fallen over 20% in one month. But despite this, the share price is still up more than 115% during the past 12 months.
I’d still buy ITM power shares. My view appears to be echoed by users of Hargreaves Lansdown platform. The stock was the most purchased share there last week.
Why have ITM Power shares fallen?
Last year, the share price had a phenomenal run. But at some point the steam was going to run out of the rally. And this is exactly what has happened. ITM Power shares have seen a correction. In other words, the price has declined by more than 10%.
I think there’s bags of potential for this company and this was recognised by other investors too. But I think reality has set in. While the firm is generating some revenue, it’s still loss-making and the route to profitability is likely to take some time. Also, the smart investors who put money into ITM Power shares early may have decided to bank some profits. I don’t blame them, as I’d do the same.
Bull case
At its half-year results in January, the AIM-listed company demonstrated it has a strong backlog and pipeline of contracts. I think this is great for ITM Power’s credibility and positioning as an expert in its field.
It also managed to successfully raise money to boost its technology and manufacturing strategies. This should help the company in the long term as it now has the funding in place to accelerate growth. It won’t be smooth sailing, but it’s taking a step in the right direction.
ITM Power is also developing strategic partnerships with the likes of Linde and Snam. These are large corporations. The fact that these firms have actively decided to partner with a smaller player, I think will boost ITM Power’s reputation.
ITM Motive
Last week, the firm announced that it’s moving ITM Motive into a separate legal entity. It’s worth noting that this segment of the business owns and operates 12 Hydrogen Refuelling Stations (HRS). Of these, eight are currently commissioned with a further four in build or funded. It’s the largest HRS operator in the UK.
ITM Motive will be a wholly-owned subsidiary of ITM Power. This separation makes complete sense to me. It will provide a transparent legal structure for this new firm to scale up. Again it highlights to me that there is significant growth potential for this new entity.
Bear case
As I said, ITM Power is generating some sales but it’s still making a loss. In 2020, it generated approximately £3m in revenue but delivered a pre-tax loss of £30m. It has highlighted that the road to profitability will take time, which may impact the shares.
The stock has been volatile and this could continue. Especially in a company where there are high expectations for growth. Investors like me need to be aware of this before they dip their toes in. This is why I’d only invest what I could afford to lose. The stock is certainly not for the faint-hearted.
Despite these concerns, I think there’s a lot of growth potential in ITM Power and I’d used this dip to snap up some shares.
