FTSE AIM incumbent ITM Power (LSE: ITM) has experienced a bit of a roller-coaster ride in the past few years, from soaring heights to more recent lows.
Could now be the time to snap up cheaper shares with a view to a turnaround as the sentiment towards renewable energy is garnering more attention and importance?
Let’s take a closer look at recent developments to help shape my investment case.
Hydrogen-based renewable energy solutions
ITM manufactures hydrogen-based energy solutions that can help with grid balancing and energy storage services. This is great for the production of clean fuel for transport, renewable heat, and chemicals.
So what’s been happening with the ITM share price? As I write, the shares are trading for 61p. At this time last year, they were trading for 110p, which is a 44% drop over a 12-month period. More tellingly, the shares once traded for 682p in January 2021, which is a 91% drop to current levels!
My investment case
When ITM soared, its exciting new technology captured the market’s attention. However, the research and development phase has proven to be very different to the production phase. The latter is where the business has struggled, causing the shares to tumble sharply. Performance was lacklustre, it under-estimated cash needed, and lengthy order delays all combined to hurt ITM.
So where do we stand today? Well, an interim update released last week showed some signs of promise. A 12-month strategy to overhaul the firm’s future seems to be paying off. Revenue came in at £8m, more than quadruple the same period last year. EBITDA was still in the negative, but significantly better than last year. More crucially, cash levels improved its balance sheet massively, which could help secure ITM’s future. Cost efficiencies and narrowing its product portfolio is an ongoing endeavour and could help the business move forward.
Based on the above, I’m not surprised that ITM shares spiked 17% in early trading when the update came out. However, there are still some red flags for me. The business is still loss-making, and there seems to be no profit in sight, which is worrying for a potential investor like me.
I find my interest in ITM piqued by recent developments. Renewable energy alternatives and sentiment is set to soar in the coming years. If the business can get its house in order, and start turning a profit, buying shares now could be a savvy move.
What I’m doing now
Despite the better update compared to others in recent times, I’ve decided I won’t take the plunge and buy any shares just yet.
The positive update and strategic review looks promising on the surface of things. However, I need to learn more about the direction of the company and its financial health moving forward. A lack of profit and continued losses is the biggest issue for me. Plus, the rate at which the firm spends money is a worry.
I’ll put ITM shares on my watch list for now, and keep a close eye on developments.
