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FTSE OBJECTIVE headline ITM Energy (LSE:ITM) has been on something of a roller coaster ride in recent years, from dizzying highs to more recent lows.
Could now be the time to buy cheaper shares for a turnaround, as sentiment towards renewable energy is gaining more attention and importance?
Let's take a closer look at recent events 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 fantastic for the production of clean transportation fuel, renewable heat and chemicals.
So what has been happening to the ITM share price? As I write, the shares are trading at 61p. This time last year they were trading at 110p, which is a 44% drop over a 12-month period. What's more telling is that the shares once traded at 682p in January 2021, representing a 91% drop from current levels!
My investment case
When ITM took off, its exciting new technology caught the market's attention. However, the research and development phase has proven to be very different from the production phase. The latter is where the business has had problems, causing the shares to drop sharply. Performance was lackluster, it underestimated the cash needed, and long order delays combined to hurt ITM.
So where are we today? Well, an interim update released last week showed some promising signs. A 12-month strategy to reshape the company's future appears to be bearing fruit. Revenue was £8m, more than quadruple the same period last year. EBITDA remained negative, but significantly better than last year. More importantly, cash levels greatly improved its balance sheet, which could help secure ITM's future. Cost efficiency and reducing your product portfolio is an ongoing effort and could help the business move forward.
Based on the above, I'm not surprised that ITM stock was up 17% in early trading when the update came out. However, there are still some red flags for me. The business is still making losses and there seems to be no profit in sight, which worries a potential investor like me.
I believe that recent events have sparked my interest in ITM. Renewable energy alternatives and sentiment are expected to soar in the coming years. If the company can get its house in order and start turning a profit, buying shares now could be a smart move.
what I'm doing now
Despite the better update compared to others in recent times, I have decided that I will not take the plunge and buy shares just yet.
The positive update and strategic review look promising at first glance. However, I need to learn more about the direction of the company and its financial health going forward. Lack of profits and continuous losses are the biggest problem for me. Additionally, the rate at which the company spends money is worrying.
I'll put ITM stock on my watch list for now and keep an eye on developments.
