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ITM Power shares: bull vs bear

Illustration of bull and bear
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Bearish: Christopher Ruane

With an 86% rise in ITM Power (LSE: ITM) shares over the past year, the company clearly has a lot of bulls. Indeed, since the beginning of last year, the shares are close to being six baggers. That sort of investment return is the stuff of dreams.

But a rapid price appreciation can also suggest that a share has got ahead of the company fundamentals. I think ITM’s technology has promise, and clearly sales are ramping up albeit from a low base. So I think it could ultimately be very successful as a company. But that is different to meaning it is a potentially rewarding investment for me as a private shareholder, given the current ITM Power share price. The habitually loss-making company has a market capitalisation of £2.6bn. Last year its revenue was just £4.3m. Its post-tax loss was over six times that much.

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To fund new factories, the company has again raised funds by diluting existing shareholders. The ITM Power share float is now 613m shares. Five years ago it was 217m shares. If the loss-making company continues to need capital for expansion, I see a clear risk of further shareholder dilution. Meanwhile, the company’s commercial track record is too small for me to assess whether it will end up being a winner in the hydrogen space. That’s why I see the shares as closer to speculation than investment. I’m an investor not a speculator, so I won’t be buying ITM Power shares for my portfolio.

Christopher Ruane has no position in any shares mentioned.

Bullish: James Reynolds

ITM Power’s biggest strength is that it already has a product. Modular electrolysis machines.

Electrolysis machines allow for energy producers to use electricity to spit water into oxygen and hydrogen without releasing any other chemical by-product.

ITM’s modular electrolysis machines are compact, transportable and on the market right now. On top of that, they can be integrated with existing energy infrastructure. All a company has to do is attach an electrolysis machine to its wind or solar farm and ‘boom’ they can start producing hydrogen fuel.

This is in stark comparison to Shell and BP who have been promising for years that they are investing in hydrogen technology but have so far produced little to no results. On top of that, they aim to produce blue hydrogen – which is dependent on currently, non-existent carbon capture technology.

ITM is simply ahead of the curve and offers a product that does not rely on the development of new technology to solve the energy needs we have today.

Hydrogen can be used to power trucks and cars but it can also heat our homes.

The company may have more debt than revenue at this point, but it has recently raised £250m to help expand its production from 1GW to 5GW. Its share price is down because it sold shares at a discounted rate to attract that investment. I see this as a fantastic buying opportunity to get in on technology that will shape the future and I will be adding ITM to my portfolio.

James Reynolds has no position in any of the shares mentioned.

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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.

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