Why has the ITM Power share price been falling again?

After a big jump a few weeks ago, the ITM share price has been tumbling again. Our writer looks at why — and considers his response.

| 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.

For a moment around the start of last month, there was optimism in the air for shareholders of ITM Power (LSE: ITM). The share price surged almost 40% in a week. But since then, the shares have fallen back to stand within 2% of where they began the year. That means that they are still 70% down over the past 12 months.

What is going on – and does it present a buying opportunity to add this renewable energy share to my portfolio?

New plans

The surge at the end of January and beginning of February arose because the new chief executive unveiled his plan for moving the company forward. It involves a more focussed product portfolio, tighter cost management, and the use of rigorous engineering benchmarking.

Investors hoped that might mean a change from ITM’s previous story. It was one of great technology but limited commercial success – and massive losses. Revenues for the first half of the company’s current financial year more than halved, to £2m. But the total comprehensive loss for the period was a whopping £56.8m. Yes, those numbers are the right way around, although they may not look it!

Once the dust settled, though, I think investor enthusiasm started to cool again, driving down the ITM Power share price.

After all, a plan is just a plan. So far there is no evidence of whether it will be the medicine ITM Power needs. With a market capitalisation of over £600m, the company still looks pricy to me until it concretely proves it has a viable business model.

Lots to prove

Will that happen?

I do not think we will know for years, although there may at least be some indications this year. Even that is unclear, though. The company now expects full-year revenue of around £2m. But it already generated that much in its first half. So it seems as if the remaining six months may be a housekeeping period during which no substantial new sales are booked. At the end of the financial year, we may still be in the sort of ‘jam tomorrow’ situation that is all too familiar to ITM shareholders.

Bringing focus to the company and sorting out its cost base seem like smart, obvious moves to me. On their own, though, these steps will not generate growth. Indeed, paring the product lineup could do the reverse. I remain unclear about the speed and scale of rollout for the future ITM Power sales model.

Show me the money

The new plan involves pricing contracts at a level where servicing them should not involve making losses. Again, that is a smart and obvious move. But ITM has a small sales footprint already and it may now walk away from more deals than before.

The company has good technology. Reducing cash burn is clearly a priority and focussing on its strengths could help build a much better, more profitable customer base. Those things may all help the company. But in the short term, the results of the new plan might not be very obvious. I think that could drive the ITM Power share price down further from here. I have no plans to buy.

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

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »