I last wrote about ITM Power (LSE:ITM) in December and concluded it was a stock with growth potential, but too much of a gamble for me. After a promising start to the year, the ITM share price plummeted and is now down 48% from its January high. One reason was the challenging environment created by the pandemic. Covid-19 restrictions led to a 92% revenue drop in its half-year earnings to 31 October. The question is, does the drop create a buying opportunity for me, as a long-term investor?
Green hydrogen paves the way for a sustainable future
The FTSE-AIM-listed company describes itself as an energy storage and clean fuel company. While governments and businesses strive for a greener future, companies like ITM Power are attempting to lead the way. Dr Graham Cooley, CEO of ITM Power, champions the case for green hydrogen as a sustainable green energy resource of the future.
Fossil fuels have been losing favour with investors for the past few years and the pandemic accelerated this sentiment. But on the flip side, an over-exuberant buying spree sent many promising stocks soaring last year, to the point that their share prices were potentially overvalued. Unfortunately, that seems to be the case with ITM Power.
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Notable ITM investors and partners
Nevertheless, for a relatively small company, it has attracted some notable investors. Allianz has a 5% stake in ITM Power, and Hargreaves Lansdown Asset Management is also invested at close to 5%. Schroders, BlackRock, and Fidelity also have small stakes.
Good news for the company is that its order book appears to be filling up, and it’s making some strategic partnerships with big names such as Royal Dutch Shell, Scottish Power, Linde, and Snam.
That said, it also faces rising competition in Ceres Power Holdings, FuelCell Energy, Melrose Industries, and Spanish energy stock Iberdrola, as well as Mcphy Energy, Hydrogenics, ClearCell Power and EnergyNova.
Separating ITM Power
On Tuesday ITM Power announced the spin-off of its hydrogen refuelling assets, resources, and personnel into a new company called ITM Motive. This will be a subsidiary of ITM Power. This may well lead to further investor interest.
Duncan Yellen, ITM Motive managing director, said: “Forming ITM Motive into a separate legal entity gives us the agility to form flexible business plans for our new builds as we look to scale up to cater for fleets of commercial and municipal vehicles“.
Are ITM shares a good investment in 2021?
The ITM share price is up 114% in a year and has seen extreme volatility during this time. Analyst growth forecasts see 116% growth this year and 181% growth in 2022. Of course, forecasts can change as future developments occur. And I can’t help worry the good news is already priced in.
I’m still not sure about investing in ITM Power. It’s undoubtedly risky, and even though its share price has fallen, it’s not necessarily a bargain stock. I will continue to watch this green hydrogen company with interest, but I’m not tempted to add its shares to my Stocks and Shares ISA just yet.
