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The glory days for ITM Energy (LSE:ITM) shareholders now seem a distant memory. In fact, however, it wasn't until 2021 that ITM Power's share price surpassed £6. It is a long way from that now and has plunged 40% in the last five years.
But could the stock, which now sells for pennies, potentially be a bargain in the long term?
The company is more focused and better prepared for success.
In recent years, ITM has focused its strategy much more clearly than before. Instead of continuing to do a lot of things, it has basically focused on areas where it believes it has what it takes to do well and is bringing more commercial rigor to the way it approaches them.
That makes sense for a company that was losing money. By getting rid of costly distractions, you'll hopefully be able to devote more time and energy to areas that offer decent prospects.
Last year's results help demonstrate this. Revenue tripled to £16.5m. While the pre-tax loss was still £27.1m (164% of revenue), it was still a 73% drop on the previous year.
I think that's encouraging. Tighter cost control can help reduce losses, while increasing sales helps generate savings. Ultimately, that could be the path to profitability, even if there is still a considerable way to go down that path.
ITM Power continues to advance
The company expects to increase revenue further this year.
It has also made progress on multiple fronts in recent months, such as achieving a new milestone in reducing iridium in its battery and signing the first contract for its Neptune V unit.
In a trading update today (December 5), 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 company achieved for the full 12 months of its most recent financial year. It also reduced the range of its expected loss before interest, taxes, depreciation and amortization for the full year.
I'm getting excited about the investment case.
Like some UK green energy peers, ITM has promising technology. Increasingly, I think their sales growth confirms this.
But I still see some risks here. The continued cash burn is a big concern for me despite the company's large amount of cash.
My biggest concern, however, is that ITM has yet to demonstrate its business model at scale. It's one thing to increase sales, 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 rise dramatically let alone anywhere near £6. Previously, reaching that level reflected a wave of optimism about the company's prospects, rather than the fundamentals of the business. That euphoric impulse has already passed.
I doubt ITM Power's share price will return to £6 unless business performance improves. dramatically even from today. However, I still see it as a potential bargain, but the risks are deterring me from investing for now.
