ITM Power (LSE: ITM), the Sheffield-based hydrogen energy solution company, has had a wild stock market ride over the past year. The shares are currently changing hands at £5.00 but previously peaked in January 2021 at £7.24. Despite the decline in the company’s shares over a one-year period, investors would have seen an increase in value of their holdings of 66.15%. When looking at performance over multiple years, the share price performance has been truly eye-watering. 656% over two years, 1,539% over three years and a remarkable 2,003% if investors had held the shares over a five-year period.
ITM Power is globally recognised as an expert in hydrogen technologies. Its overarching principle is to take excess energy from the power grid and convert it into green hydrogen, utilising its own electrolysers, which are designed and built at its Sheffield base. The hydrogen is used in three main areas: mobility, chemicals, and industrial application. With governments around the world clamouring for clean energy solutions to help avert a climate catastrophe, interest in green hydrogen has really taken off.
ITM recently announced it was part of a consortium that had been awarded a grant from the European Climate, Infrastructure and Environment Executive Agency for the development of a 100MW electrolyser at Royal Dutch Shell’s energy and chemicals park in Germany. The grant totalled £27.5m. This is a world-leading project that demonstrates the increasing commitment by governments and industry to decarbonise at scale, using zero carbon footprint green technology.
In a show of confidence, the investment banking group Jefferies recently initiated coverage of ITM with a ‘buy’ rating and a target price of £8.00. Jefferies stated its preferred play on green hydrogen is the electrolyser companies and within that sub-sector ITM is its top pick. It sees a potential 60% share price upside from current levels.
ITM continues to expand rapidly. It recently agreed terms to acquire a site for its second UK factory in Sheffield. The £13.4m, fully automated factory of around 260,000 square feet is expected to have a capacity of 1.5GW per annum. This will complement its existing 1GW site.
Despite all the positives, ITM Power isn’t without its issues. Hydrogen technology is still very much in its infancy and huge amounts of money are required to drive the research and development. Despite governmental interest in green hydrogen, there is no guarantee of commercial success. In the firm’s latest results, ITM reported that losses for the full year had widened to £21.4m. The loss-making company has a market capitalisation of £2.73bn due to the surging share price. The surge, in this investor’s opinion, is based on optimism and not financial results.
In the case of ITM Power, I believe that if I continue to hold my shares I will be rewarded over the longer term. It is important to note, however, that when investing for the long term I am always wary of putting all my eggs into one basket. I therefore spread my funds and invest in different sectors and geographies. I remain resolute in my belief that diversification is key to building a successful portfolio over the longer term.
Isaac Stell owns shares in ITM Power. 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.