The glory days for ITM Power (LSE: ITM) shareholders now seem like a distant memory. In fact, though, it was as recently as 2021 that the ITM Power share price topped £6. It is a long way from that now – and has sunk 40% over the past five years.
But could the share, now selling for pennies, potentially be a long-term bargain?
Company is more focussed and better set for success
Over the past couple of years, ITM has focussed its strategy much more sharply than was previously the case. Rather than continuing to do lots of things, it has basically zoomed in on areas where it thinks it has what it takes to do well and is bringing more commercial rigour to how it goes about them.
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That makes sense for a company that was bleeding cash. By getting rid of costly distractions, it can hopefully spend more time and energy on areas that hold out decent prospects.
Last year’s results help demonstrate this. Revenues more than tripled, to £16.5m. While the pre-tax loss was still a painful £27.1m (164% of revenue), that was still a 73% drop from the prior year.
I think that is encouraging. Keener cost control can help narrow losses, while scaling up sales helps bring economies. Ultimately, that could be the path to profitability – even if there remains considerable distance ahead on that path.
ITM Power is making ongoing progress
The company expects to grow revenues further this year.
It has also been making progress on multiple fronts in recent months, such as achieving a new milestone in iridium reduction in its battery stack and signing the first contract for its Neptune V unit.
In a trading update today (5 December), the company provided a summary of its performance in the first half of its current financial year.
This included revenue of £15.2m: close to what the firm managed for the full 12 months of its most recent financial year. It also lowered the range of its expected loss before interest, tax, depreciation, and amortisation for the full year.
I’m warming to the investment case
Like some UK green energy peers, ITM has promising technology. Increasingly, I think its sales growth bears that out.
But I still see some risks here. Ongoing cash burn is a big concern for me despite the company’s large cash pile.
My biggest concern, though, is that ITM has yet to prove its commercial model at scale. Growing sales is one thing but what I would really like to see before investing is proof that the model is sustainably profitable.
Until that happens, I see no reason for the share price to gain dramatically let alone to anywhere near £6. Previously hitting that level reflected a surge of optimism about the company’s prospects, rather than the business fundamentals. That euphoric momentum is long gone.
I doubt the ITM Power share price will be £6 again unless the business performance improves dramatically even from today. I still see it as a potential bargain, though, but the risks put me off investing for now.
