Would I buy hydrogen stock ITM Power right now?

The ITM Power share prices been in a slump since January, but now it is rising again. Should I be buying this hydrogen stock?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Note paper with question mark on orange background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The ITM Power (LSE:ITM) stock price is over 250p below its January 2021 highs. The slump can be probably be blamed on the Covid-19 disruption. Lockdowns slashed ITM Power’s revenues, which, when reported, caused investors to run away from shares in the hydrogen electrolyser manufacturer. Now the economy is opening up, is it time to start getting excited about the ITM Power share price prospects?

The case for hydrogen as a fuel

ITM Power makes equipment that can produce hydrogen from the electrolysis of water. It manufactures at a new 134,000 square foot gigafactory in Sheffield, UK. Green hydrogen — that is made by electrolysis of water using renewably generated electricity — is getting political backing from the EU. The UK government is backing low carbon hydrogen, which will benefit the likes of ITM Power, but also includes blue hydrogen. Blue hydrogen is produced from natural gas and requires carbon capture to be net-zero or electrolyser-derived hydrogen with a fossil-fuel-powered electricity supply.

Governmental support is crucial for a small, immature industry like hydrogen. Hydrogen is backed because it should have a place in otherwise hard to decarbonise parts of the economy. Long-distance road haulage, steel making, and shipping are examples of industries where it’s either hard to tap into a renewable electrical grid or batteries are not a viable option.

ITM Power is making hydrogen pay

ITM Power has partnerships and projects to supply megawatts of electrolyser capacity to Italian energy infrastructure energy company Snam, Royal Dutch Shell, and wind turbine producer Orsted. It already has its electrolysers on-site at hydrogen filling forecourts across the UK. The company grew its revenues from £1.93m in 2016 to £4.59m in 2019, before they slipped during the Covid-19 pandemic, and losses widened. Note, I said losses widened. ITM Power has not yet turned a profit. Even before the pandemic, net profit was negative and getting more so.

But, there is a significant backlog of orders to work through and increasing demand. I expect that backlog to be cleared as its new gigafactory started operations in January 2021. It has to be expected that as turnover increases, profits will follow, but this remains to be seen.

ITM Power Share Price

After a few false dawns, the hydrogen sector does seem to be coming of age now. There are now funds specialising in the sector like the recently launched HydrogenOne Capital Growth fund, although that fund fell short of its £250m IPO target. There is governmental level support for the industry, and its products and services are seeing increasing demand.

Although ITM Power and its share price stand to benefit from the appetite for hydrogen, the stock is still speculative as it is yet to demonstrate it can turn a profit. Also, its shares are very pricy. ITM Power’s market cap is over £2bn, which is around 400 times what it earned in revenue in its best year. I think the company has great potential, but there are unrealistic expectations baked into its share price. These expectations limit the upside. Therefore I would not buy ITM Power shares in my Stocks and Shares ISA right now. But this is a share I will definitely keep on my watchlist.

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 assessed. Consider taking independent financial advice.

James J. McCombie owns shares in Royal Dutch Shell and Orsted. 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »