Will the ITM share price ever return to 600p?

The ITM share price has collapsed since January, falling by 50%. Roland Head asks if this hydrogen stock is now a potential bargain buy for him.

| 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.

Risk reward ratio / risk management concept

Image source: Getty Images

The ITM Power (LSE: ITM) share price has risen this morning after the hydrogen power company said it had secured a €32m EU grant to build a “world-leading” 100MW electrolyser in Germany.

Today’s update seems like good news to me, but shareholders will be painfully aware that ITM’s share price has fallen by 50% from the highs seen earlier this year. Are the shares now a potential bargain buy for my portfolio? I’ve been taking a closer look.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Heavyweight supporters

Industrial heavyweights Royal Dutch Shell and Linde both seem to agree with my view of ITM’s potential. Both companies are its long-term partners. Linde owns 17% of the business while the Refhyne II project, announced today, will be built at Shell’s Rhineland Refinery in Germany.

Equally, I’d guess that many private investors will be encouraged to see some well-known UK business people on ITM’s shareholder register. Digger maker JCB (chaired by Lord Bamford) owns 9.3% while Hargreaves Lansdown founder Peter Hargreaves owns 5.2% of the business.

However, it’s worth remembering that both Bamford and Hargreaves bought their ITM shares at much lower prices. JCB’s initial investment was made at 30p per share in 2015, for example. The share price, as I write, is 383p.

Similarly, the amounts invested so far by Shell and Linde aren’t significant in their accounts. Large industrial businesses like these will invest in a number of interesting opportunities every year. Not all of these will be successful, but they provide early access to new technology. That’s useful for Shell and Linde — but it doesn’t help me.

ITM share price: ahead of reality?

Hydrogen stocks have soared over the last couple of years, but their valuations aren’t (yet) justified by results. In my view, this is why ITM’s share price has fallen so hard. Investors are recognising that most hydrogen businesses are still a long way from profitability. Some won’t succeed.

ITM generated just £4m of commercial revenue last year. In September, the contracted order book stood at just £36m. Even the group’s bidding pipeline — the most optimistic measure I can find — was only £378m.

When I look at these numbers, ITM’s £2.1bn valuation doesn’t make sense to me. Sales of modular refuelling systems to fleet operators and service stations are only just getting started. Larger projects such as Refhyne II are still in the design phase.

My sums suggest ITM will need to deliver at least three to five years of solid growth to justify today’s share price.

My verdict

In my view, ITM’s share price is unlikely to return to 600p for the foreseeable future. I think the greater risk is that the shares could have further to fall. For this reason, I won’t be buying ITM stock at current levels, even though I like this business.

Instead, I’m going to keep watching this interesting sector and learning more about hydrogen. I reckon I could make some money here — just not yet.

Our #1 North American Stock For The ‘New-Age Space Race’

Billionaires like Jeff Bezos, Bill Gates, Elon Musk, and Mark Zuckerberg are already betting big money on the ‘new-age space race’, and for one very good reason…

…because this is an industry that according to Morgan Stanley could be worth $1 TRILLION by 2040.

But the problem is most of their investments are in private companies — meaning they’re largely off-limits for everyday investors.

Fortunately, our team of analysts have identified one little-known company that’s at the cutting-edge of the space industry, and is currently trading at what looks like a VERY reasonable valuation

for now.

That’s why I want to urge you to check out our premium research on this top North American space stock ASAP.

Simply click here to see find out how you can grab your copy today

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Investing Articles

2 cheap UK shares to buy right now!

Recent market volatility means many top stocks now trade at rock-bottom prices. Here are two cheap UK shares I'm thinking…

Read more »

Rolls-Royce's business aviation engine, the Pearl 700
Investing Articles

The Rolls-Royce share price is just pennies. Am I missing something?

As the Rolls-Royce share price lingers in penny stock territory, our writer revisits the investment case that has attracted him…

Read more »

Compass pointing towards 'best price'
Investing Articles

How to put a valuation on the Woodbois share price

The Woodbois share price has fallen from its recent spike, so should I buy now? And how can I work…

Read more »

Inflation in newspapers
Investing Articles

I’d fight inflation with these 2 FTSE 100 dividend shares

With inflation hitting a 9%, I'm boosting my passive income and turning to these two FTSE 100 dividend stocks.

Read more »

New Ways of Investing - Hands Only Using Smart Phone
Investing Articles

2 cheap Footsie stocks to buy for BIG dividends!

The recent stock market sell-off leaves plenty of top stocks looking too cheap to miss. Here are two great Footsie…

Read more »