Over the past year, owning shares in ITM Power (LSE: ITM) has been awfully unrewarding. During that time, the ITM Power share price collapsed 77%. But the shares have moved up over 20% in the past week or so.
Today, the hydrogen electrolyser manufacturer announced that it is expanding some of its business premises as part of its turnaround plan.
Does this bode well for the company’s prospects – and ought I to buy in now?
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Strategic shift
Earlier this year, the company announced a new short-term strategy. This aimed to slim down its activities and focus efforts on just a few of the company’s most promising lines of business. Part of this plan involved taking a robust approach to product validation and gearing up for manufacturing at scale.
Last month, the firm announced that it had tripled power supply to its main site. Today, it announced that it will “substantially” expand the site. This will allow ITM to create a dedicated research and development centre, including facilities for product validation and testing. It also ought to free up some manufacturing space for higher production volumes.
The move shows that ITM is serious about implementing its strategy. I see that as positive for the long-term prospects of the business. Its technology is strong. So far, its challenge as a business has been scaling up production, sales, and servicing with a profitable commercial model.
Share price impact
As the recent increase in the ITM Power share price suggests, at least some investors seem to be enthusiastic about the company’s outlook.
However, the longer-term share price performance remains unimpressive. Even after their recent bounce, the shares are around 30% lower than the price they hit in early February as investors digested the new strategy.
So, while ITM’s more commercially focussed approach makes sense to me, I think the City remains sceptical about how well the business will execute.
This ‘show me the money’ way of thinking suggests that for the ITM Power share price to soar again, the company will need to demonstrate that the strategy is working in resolving its key challenges to date. Primary among those is profitability: last year’s losses totalled £57m despite the firm generating just £2m in revenues.
Wait and see
So although I do see promise in ITM’s technology and appreciate its current strategy, I am in no hurry to buy the shares for my portfolio.
Investing would involve a similar question I have about many other renewable energy shares too. The market is developing and it remains hard to assess who will be the likely winners over the long term. ITM’s commercial history is worrisome as it has been losing money hand over fist for years.
A more streamlined approach could help to let the company play to its strengths, but I think a lot of work remains to be done to grow sales, ramp up manufacturing capability, and develop a profitable business model.
