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ITM Power shares: should I buy now?

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As someone who believes clean energy is the future, I’d buy ITM Power (LSE: ITM) shares today. The stock has fallen from its highs and closed at 492.8p on Tuesday. But it was 717p in January, although it was only 136.73p a year ago. Yet I reckon now may be a good entry point. Here’s why.

ITM Power: an overview

In a nutshell, the AIM-listed company manufactures equipment that take excess energy from the power network, converts it into hydrogen. It then uses this green hydrogen energy in various market areas.

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According to the ITM Power website, this energy can be used in various markets. This includes powering vehicles such as cars and trucks. It’s clearly trying to emphasise that there’s huge potential for its hydrogen technology. And I agree with it, hence my interest in buying the stock.

Growth drivers

The shares have had a phenomenal run. While the stock is down from its highs, the past few years has seen the company transform into a company with a multi-billion pound market cap.

I think there are a few drivers behind the growth of its share price. I see the main macroeconomic driver being that most economies are moving to net zero carbon emissions. Since more people are using renewable power, the overall cost of green energy has fallen.

This demand is set to continue and thereby the cost of clean energy such as hydrogen is likely to fall. This means that the take-up of ITM Power’s services should increase, thereby boosting revenue and profitability.

Further catalysts

ITM Power shares have also been propelled by a few other catalysts. In October 2019, it announced the completion of a fundraising, including a significant investment by Linde.

This also included the formation of a joint venture with Linde to focus on delivering renewable hydrogen to large-scale industrial projects worldwide. I see the partnership with Linde as key in order for ITM Power to scale up its business. In fact, Linde now owns approximately 18% of the firm.

In November 2020, the company completed a £172m fundraising, including a £30m investment by Snam, one of the world’s leading energy infrastructure operators. For me, what is pleasing to see is how ITM Power has other large companies as customers and partners. I think it highlights the credibility of the firm’s hydrogen technology.

In fact, it partnered with Scottish Power Renewables in September 2020 to create new green hydrogen production facilities with clusters of refuelling stations across Scotland. This supports the country’s efforts to achieve net zero carbon emissions by 2045. 

Risks

While the company is generating some revenue, it’s still loss-making. I expect pressure to continue on profitability in the short-term as ITM Power invests in its technology. This in turn may hinder share price growth.

I think it’s worth noting that the company’s route to profitability is to gain market share in early entry markets, which includes the industrial hydrogen sector. While the company is taking the right steps, this could take some time to bear fruit.

For now ITM Power is growing and gaining recognition in its industry. But as a long-term investor I see a lot of upside.

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Nadia Yaqub 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.