Investing in hydrogen energy company ITM Power (LSE: ITM) has produced explosive results — but not in the way most investors want. Rather, the shares have been a good way to blow up portfolio values. Over the past year, the ITM Power share price has crashed 74%.
The shares fell in today’s morning trading after the company issued yet another profit warning. But with the shares now trading far below previous levels, could this be a buying opportunity for my portfolio? After all, I do think renewable energy is a growth area but it so far lacks exposure to my holdings.
Bad news or good news?
Today’s statement contained bad news. The company said it expects lower revenue and a higher loss before interest, tax, depreciation and amortisation than expected. That is alarming, given that the company has already been consistently lossmaking for years. It lost £47m in its most recent financial year.
However, I do see a potential silver lining to the announcement. Last month, the company appointed a new chief executive. A detailed operational review is also underway, with fuller guidance and a short-term strategic plan, set to be announced later this month.
That could mean current management is seriously working through issues that ITM Power has long struggled with, such as commercialising its technology in a profitable way. If that turns out to be as positive as it looks, the investment case may now be more attractive than it has been for a while.
While the ITM Power share price has collapsed, the company could be about to enter a period of strategic turnaround that helps improve its financial prospects.
On top of that, it is worth noting that the company had net cash of £318m at the end of October. That is close to 60% of its current market capitalisation which sits at £554m.
Ongoing risks
If the short-term review can square the circle of boosting revenues substantially while cutting costs – something at which ITM Power has historically struggled – then I do think its shares could now be primed for recovery.
However, I will not be dipping into my pocket and buying any time soon. The outlook for ITM Power still involves lot of questions to which there are precious few clear answers.
Can sales surge? After all, today’s statement talked about focussing on a “core product suite”. That could actually mean fewer not more sales than previously expected.
Can ITM Power cut its losses? Although the statement referred to a “rigorous approach” to costs, the firm also referred to preparing for manufacturing at scale. That could be expensive.
Will the company be able to speed up its commercialisation? ITM Power today referred to “robust product validation”. That seems like a smart move (and indeed one I would have hoped was already part of the company’s approach). But it could also mean timelines are lengthened.
Too risky for me
In other words, even after the statement today, the ITM Power investment case involves a lot of unanswered questions. Perhaps things will become clearer with the strategic announcement scheduled for later this month.
Even then, before considering investing, I would wait for hard evidence of financial success from the company, not just an improved strategy. Meanwhile, the shares seem too racy for my personal risk tolerance.
