Down 26% in a day! ITM Power shares are falling fast. Here’s what I’d do

After recent results, ITM Power shares are in free-fall. Should I buy shares in the hydrogen firm after the crash?

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ITM Power (LSE:ITM) shares have had a rough 2022. Just today, its shares fell a whopping 26% after its full-year results were released.

Also, the news of CEO Dr. Graham Cooley stepping down after 13 years in charge and a new €140bn EU windfall tax on renewable energy firms’ profits contributed to the decline.

Looking at the ITM Power share price action, this fall is not sudden. The stock has plummeted 54.5% in a month and 71% in a year. Considering the amazing year energy stocks have had, this does not look good.

Here I will look at the results, what to expect moving forward and if I will make an investment in ITM Power shares after this historic collapse.

Is net zero just a dream?

The UK’s 2050 net-zero ambitions are lofty, considering how powerful fuel companies are today. The oil lobby is still extremely influential and holds the resources and infrastructure needed to make the transition possible.

But with the larger global economy in an uncertain position, the green energy transition is proving too expensive, causing a huge spike in bills for most people.

Any positives for ITM Power shares?  

Firstly, hydrogen fuel is the only net-zero energy source we know. Its by-products are reusable. It doesn’t remove oxygen from the atmosphere or add more water vapour, creating a balance.

ITM Power manufactures electrolyser systems and develops plants that generate this clean hydrogen fuel. It also operates seven hydrogen refuelling stations and a 1GW-capacity factory in the UK.

In 2022, the company saw its contract backlogs increase by 79% to 755 MW. As a result, revenue jumped over 30% to £5.6m, coupled with a significant increase in assets and inventory.

But the company recorded a gross loss of £23.5m in FY 2022. The board expects this figure to increase to £45m-£50m next year given the company’s high R&D budget.

Also, to complete current contracts, ITM Power would have to significantly increase production capacity. The company raised £250m to expand energy output to 5GW by December 2024. But the board stated in the release that achieving this target after the current energy crisis will be very tough.

Due to mounting expenses, the company’s plans to set up a new factory were scrapped. Now, ITM Power is working on improving output from its Bessemer Park factory to 1.5GW. But this could be too little given the growing demand.

Should I buy ITM Power shares right now?

As a potential investor, I see a lot of green energy stocks still carrying significant risks given the demand to accelerate development. ITM Power has this issue too. Yes, a lot of government grants and private contracts are being signed by the firm. But scaling up in the current economic and political climate will cost billions.

With the demand for cheap energy at an all-time high, I think green energy explorations will take a back seat over the coming months.

ITM Power shares are currently crashing and I never try to catch a falling knife. Once signs of a turnaround are clear, I would re-evaluate my position. But right now, I wouldn’t touch it with a 10-foot pole.

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.

Suraj Radhakrishnan has no position in any of the shares mentioned. 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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