Is the ITM Power share price a bargain at current levels?

The ITM Power share price has been falling for some time. This Fool wants to know if the dip represents a buying opportunity for his holdings.

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ITM Power (LSE:ITM) shares have been on a downward trajectory for some time. Is the current falling share price an opportunity to get a bargain for my holdings?

The ITM Power share price continues to fall

ITM Power manufactures hydrogen fuel cells. These energy solutions are designed in a way to meet requirements for energy services and help the production of clean fuel for transport as well as renewable heat and chemicals.

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ITM shares have been on a downward trajectory for some time now. As I write, the shares are trading for 258p. At this time last year, the shares were trading for 645p, which is a 60% drop over a 12-month period.

I believe ITM shares have declined due to ongoing fears of losses that the firm have been reporting and could continue to report. This has led to many investors selling the shares, which has affected investor sentiment and driven down the price.

For and against investing

FOR: Despite recent losses, ITM has recorded an improvement in revenues. In a half-year report released at the end of January, ITM reported revenues of £4.2m. This was up from £200,000 in the same period last year. The results last year, however, were affected by the pandemic. Increasing revenues is usually positive, and tells me that ITM could eventually turn losses into a profit, over time.

AGAINST: Losses reported in recent times by ITM, due to operational costs and the scaling up of the business cannot be ignored. In fact, the losses seem to be increasing as per the half-year report mentioned above. ITM revealed that losses before tax increased to £15.3m compared to £12m in the same period in 2020.

FOR: The renewable energy market, and specifically the hydrogen market globally, is set to grow exponentially over the coming years and decades. This is due to a renewed global focus on cutting carbon emissions and tackling climate change. It is said that 90m tonnes of the gas is currently used but by 2050, the Hydrogen Council reckon demand could reach as high as 500m and 550m tonnes by 2050. Operating in a growth market could help boost the ITM Power share price.

AGAINST: It looks like ITM won’t be a profitable business anytime soon due to its vast operating expenditure and associated costs. Losses are set to continue for the next few years as well. Forecasters are expecting losses of around £30m for the next three years. Of course, these are just forecasts and things could change. Another factor putting me off is the intense competition in the hydrogen market. There are many firms vying for supremacy with potentially better technology and lower operating costs.

My verdict

Overall, ITM Power is struggling right now. Losses are forcing the ITM share price downwards. I believe in the long term, it could rise once more, but  right now, I would avoid the shares for my holdings. The immediate future looks bleak and the longer term future is also dependent on demand rising and the company’s ability to ward off intense competition. I will keep a keen eye on developments, however.

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Jabran Khan 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.

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 considered, so you should consider taking independent financial advice.

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