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The glory days Power of ITM (LSE: ITM) shareholders now seem like a distant memory. In fact, however, it was only in 2021 that the price of ITM Power increased by £6. It’s a long way from there now – and has sunk by 40% in the last five years.
But could the share, now trading for pennies, be a long-term gain?
The company is more focused and better set up for success
Over the past few years, ITM has focused its strategy more sharply than ever. Rather than continuing to do a lot of things, it is very close to the areas where it thinks it has what it takes to do well and bring commercial intensity to the way it goes.
That makes sense for a company that is bleeding money. By removing costly distractions, it can hopefully spend more time and energy on areas that offer better prospects.
Last year’s results help to illustrate this. Revenue more than tripled, to £16.5m. Although the pre-tax loss was still a painful £27.1m (164% of revenue), that was still a 73% drop from the previous year.
I think that’s encouraging. Keener’s cost control can help to minimize losses, while increasing sales helps to bring economy. Ultimately, that could be the path to profit – even if there is still a long way to go on that path.
The power of ITM is making continuous progress
The company expects to increase its revenue this year.
It has also made progress on many things in recent months, such as achieving a new milestone in the reduction of iridium in its battery stock and signing its first iridium contract. 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 earnings of £15.2m: close to what the company managed to cover for the full 12 months of its latest financial year. It also lowered the range of its expected loss before interest, taxes, depreciation, and amortization for the full year.
I enjoy the investment case
Like other UK green energy peers, ITM has promising technology. Increasingly, I think its sales growth proves that.
But I still see some risk here. The continued cash burn worries me a lot despite the company’s huge cash flow.
My biggest concern, however, is that ITM has yet to prove its trading model to scale. Sales growth is one thing but what I would like to see before investing is proof that the model is sustainable.
Until that happens, I see no reason for the shee price to gain dramatically let alone go anywhere near £6. Previously hitting that level indicated increased optimism about the company’s prospects, rather than business fundamentals. That impulse of happiness has long since faded.
I doubt ITM Power’s share price will be £6 again unless business performance improves surprisingly from today. I still see it as a possibility, however, but the risk would put me off investing for now.
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