Can the ITM Power share price recover — or is it doomed?

The ITM Power share price fell this week after more bad news from the company. Could this be a buying opportunity for our writer’s portfolio?

| 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.

Light bulb with growing tree.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

A lot of companies are developing clean power sources and storage facilities for the future. One of them, ITM Power (LSE: ITM), might also be hoping for more positive power in its share performance. But after bad news this week, the ITM Power share price is now over 70% lower than it was a year ago.

So should I invest for recovery? Or might there be further bad news for ITM shareholders?

Disappointing results… and a new CEO

The firm’s share price fell this week after it released disappointing results and announced the replacement of its long-standing chief executive, although he will not be leaving altogether.

The results were not all bad. Revenue last year grew 30%. That is impressive, although it was still only £5.6m, which is fairly small beer for a company with a market capitalisation of almost £700m.

But while the topline results improved, the bottom line was more concerning. The company’s loss before tax ballooned 69% to £47m. That shows the financial challenges the company faces as it tries to scale up its business.

I see a risk it will continue to make sizeable losses in coming years, which could lead to further dilution for existing shareholders. ITM did end last year with a cash balance of £366m though, so liquidity is ample for the foreseeable future.

The company also scaled back the target production capacity of its main factory considerably, as well as putting plans for a second production facility on hold. The raft of bad news hurt the ITM share price.

Battery half-charged or half-empty?

The market reaction to the results suggested that investors have scaled back their hopes for what ITM can realistically achieve and thus its valuation.

I see the results as a mixed bag. Basically, they were terrible when it came to costs, although continued revenue growth is a bright spot. If the company’s valuation was not so high, I would see the sales trend as positive. But the high weight of expectations implied by the market capitalisation it can be easy to forget that.

The company needs to improve its financial model. Scaled-back production plans could be a sign that it plans to do that. However, they might also mark the beginning of a reduction of ambition for the firm, which I think could further hurt the future ITM Power share price.

Can the ITM Power share price recover?

If that is the case, ITM shares may never recover their former highs. It has a comfortable liquidity cushion but if it cannot make strong commercial progress before that runs down, investors may not want to stump up money for more shares.

In that sense, I think the high cash burn and reduced production targets could mean ITM will struggle to survive as an independent company in the long-term. If the company cannot find a path to profitability, or further investment, in the long term it could be doomed.

I may be wrong about that. Certainly, it is not yet doomed. ITM has promising technology, growing sales, a sizeable cash pile, and may also benefit from new leadership. But I see a lot of risks here, so will not be adding the shares to my portfolio.

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.

C Ruane 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.

More on Investing Articles

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing For Beginners

Up 10% in a day, this FTSE 250 stock still looks undervalued to me

Jon Smith explains why a FTSE 250 finance stock has soared higher and flags up reasons why this might not…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Rolls-Royce shares are close to reaching £10. Is it too late to buy?

Rolls-Royce shares have come a long way. With the price within spitting distance of £10, our writer considers whether he…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

With H1 profits back on track, is this FTSE 250 housebuilder ready to bounce back?

Operating profits are down 22% at Vistry. But as cost issues give way to government support, could the FTSE 250…

Read more »

Investing Articles

2 fantastic UK growth stocks to consider for a Stocks and Shares ISA

Looking for opportunities for a Stocks and Shares ISA portfolio? Our writer shares two ideas from the London Stock Exchange.

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

Investors could target £8,840 of annual dividend income from 5,851 shares in this FTSE 250 high-yield star!

Shares in this FTSE 250 stock generate a much higher dividend yield than the index average and can produce potentially…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

HSBC’s share price has dipped 5% to just over £9, so should I buy more right now?

HSBC’s share price has dipped in recently, but this could signal a bargain to be had. I ran the key…

Read more »

many happy international football fans watching tv
Investing Articles

Is this FTSE 250 stock gearing up to more than double its market cap by October?

Our writer considers the implications of a recent stock market announcement for the share price of this FTSE 250 retailer.…

Read more »

Inflation in newspapers
Investing Articles

3 overlooked UK shares growing dividends faster than inflation

Mark Hartley highlights three lesser-known UK shares offering inflation-beating dividends, while noting key risks investors should watch.

Read more »