Over the long term, shareholders in ITM Power (LSE: ITM) have done well, with the shares moving up 234% over the past five years. The past year has been awful though, with ITM Power shares losing 62% of their value.
But there has been a sharp rally over the past few weeks. And with the company’s final results published on 17 August, could now be the right moment to add some ITM Power shares to my portfolio in anticipation of strong future performance?
Promising outlook
The results certainly contained some positive-sounding elements. This year has seen the company adopt a new strategy and more rigorous focus on building a profitable commercial model. The company expects this to lead to revenue of £10m-£18m in its current financial year, up from £5.2m last year. That is sizeable revenue growth in percentage terms.
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ITM has simplified its product portfolio and is gearing up for manufacturing at scale. That could help the company ramp up sales, which it needs to do if it is to hit those aggressive revenue targets.
The company also expects to reduce its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) from a £94m loss last year to a loss of £45m-£55m. I still see that as massive, given the company’s revenue base, but it would be a significant improvement on last year.
Lots to prove
Still, although ITM is upbeat about its prospects, I think it has a lot to prove.
It has continued to burn cash at an alarming rate, a consistent theme in recent years. It is now focussed on its MEP30 stack platform and Plug & Play containers. Although I think a rationalised product portfolio makes sense, it also brings the risk that the company becomes ever more reliant on a small number of products. If a competitor launches a strong alternative to the plug-and-play containers, for example, that would be a risk to sales volumes for ITM.
Meanwhile, the company plans to develop “an increasingly global footprint“. International expansion can be fraught with challenges.
ITM has invested heavily in building its Sheffield operations but historically struggled to develop a viable commercial model. I see a risk of biting off more than it can chew if it tries to expand internationally while also simultaneously changing its business model substantially.
Share price potential
The company has a market capitalisation of over half a billion pounds, though I think a large element of that valuation reflects the £283m of net cash it had on its balance sheet at the end of April.
There are reasons to believe that the current turnaround programme is working so far, setting the scene for the company to grow revenues and reduce sales. That could help propel ITM Power shares higher.
ITM does have impressive hydrogen energy technology that could help it win customers as the demand for renewable energy increases.
But I temper my optimism. The company remains heavily loss-making, it is burning cash and it has yet to prove it has a profitable commercial model.
So for now, I have no plans to buy ITM Power shares.
