Many long-term investors in ITM Power (LSE: ITM) will have done incredibly well. Those who had the foresight to buy the shares almost five years ago and sell early in 2021 would be sitting on gains of around 2,100%. Since then, the tide has turned. The ITM share price is now roughly 42% below where it stood at the end of January. Will June’s trading update change things? And should I take advantage of the price drop?
ITM: The story so far
Let’s recap. ITM is a highly promising hydrogen energy storage and clean fuel company. Put simply, analysts believe the element — and the AIM-listed business — could play a huge role in decarbonisation (returning levels of CO2 in the atmosphere to more natural levels).
Back in 2015, ITM signed an agreement with Shell for hydrogen refuelling stations. A couple of years ago, this was extended to include forms of transport such as buses, trains and ships. In 2019, the company also announced a joint-venture with engineer Linde to deliver renewable hydrogen to industrial projects across the globe.
In more recent news, ITM revealed that it had signed a collaboration agreement with (and received strategic investment from) Italian energy infrastructure firm Snam. Other developments include the opening of a gigafactory in Sheffield.
The ITM share price: where next?
The quick answer to where the share price is going is that no one knows for sure. A slightly more involved response is that it really depends on whether the company meets, beats or falls short of investors’ expectations on 10 June. Despite recent operational progress, the last of these is clearly possible.
Back in January, ITM reported results for the six months to the end of October. For me, two numbers stood out. The first was a 92% drop in revenue to just £200,000, partly due to Covid-19 disruption. The second was a 28% rise in the adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) loss to £10.4m. Despite recent investment helping accelerate the company’s growth strategy, things could get worse before they get better.
Even if ITM shareholders accept this, more general market moves could still have a bearing. Right now, investors are shunning growth for value. This could prove problematic for the ITM share price’s near-term performance. So, even better-than-expected news in June (thanks to the lifting of restrictions) may not change the stock’s trajectory. The company’s low free float — the number of shares available to trade — could also amplify any fall. Of course, the opposite is also true.
Not for me….yet
The potential for hydrogen-focused companies is massive. Unsurprisingly, ITM thinks its “rapidly developing backlog and tender pipeline” is evidence of its “world class” offering.
I’m keeping my feet on the ground for now. Let’s not forget that the advent of the internet saw many companies coming to the market only to quickly disappear following the dotcom bust. A similar scenario may play out here. ITM could well prove to be one of the victors, but there can be no guarantee. When hype meets reality, the latter wins eventually.
Taking my own risk level into account, buying a clean energy fund remains the best strategy for me. This way, my money is spread across many companies rather than just one. Options here include the Invesco Global Clean Energy ETF or my favourite, iShares Global Clean Energy ETF.