Will the ITM share price ever return to 600p?

The ITM share price has collapsed since January, falling by 50%. Roland Head asks if this hydrogen stock is now a potential bargain buy for him.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The ITM Power (LSE: ITM) share price has risen this morning after the hydrogen power company said it had secured a €32m EU grant to build a “world-leading” 100MW electrolyser in Germany.

Today’s update seems like good news to me, but shareholders will be painfully aware that ITM’s share price has fallen by 50% from the highs seen earlier this year. Are the shares now a potential bargain buy for my portfolio? I’ve been taking a closer look.

Heavyweight supporters

Industrial heavyweights Royal Dutch Shell and Linde both seem to agree with my view of ITM’s potential. Both companies are its long-term partners. Linde owns 17% of the business while the Refhyne II project, announced today, will be built at Shell’s Rhineland Refinery in Germany.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Equally, I’d guess that many private investors will be encouraged to see some well-known UK business people on ITM’s shareholder register. Digger maker JCB (chaired by Lord Bamford) owns 9.3% while Hargreaves Lansdown founder Peter Hargreaves owns 5.2% of the business.

However, it’s worth remembering that both Bamford and Hargreaves bought their ITM shares at much lower prices. JCB’s initial investment was made at 30p per share in 2015, for example. The share price, as I write, is 383p.

Similarly, the amounts invested so far by Shell and Linde aren’t significant in their accounts. Large industrial businesses like these will invest in a number of interesting opportunities every year. Not all of these will be successful, but they provide early access to new technology. That’s useful for Shell and Linde — but it doesn’t help me.

ITM share price: ahead of reality?

Hydrogen stocks have soared over the last couple of years, but their valuations aren’t (yet) justified by results. In my view, this is why ITM’s share price has fallen so hard. Investors are recognising that most hydrogen businesses are still a long way from profitability. Some won’t succeed.

ITM generated just £4m of commercial revenue last year. In September, the contracted order book stood at just £36m. Even the group’s bidding pipeline — the most optimistic measure I can find — was only £378m.

When I look at these numbers, ITM’s £2.1bn valuation doesn’t make sense to me. Sales of modular refuelling systems to fleet operators and service stations are only just getting started. Larger projects such as Refhyne II are still in the design phase.

My sums suggest ITM will need to deliver at least three to five years of solid growth to justify today’s share price.

My verdict

In my view, ITM’s share price is unlikely to return to 600p for the foreseeable future. I think the greater risk is that the shares could have further to fall. For this reason, I won’t be buying ITM stock at current levels, even though I like this business.

Instead, I’m going to keep watching this interesting sector and learning more about hydrogen. I reckon I could make some money here — just not yet.

Our analysis has uncovered an incredible value play!

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
US Stock

3 of the best pieces of advice from Warren Buffett’s final annual meeting

Jon Smith reviews some of the highlights from Warren Buffett's final conference and details investing lessons that everyone can learn…

Read more »

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

The Card Factory share price sinks after reporting its 2025 results

Our writer considers why the Card Factory share price responded negatively to this morning’s results announcement and latest trading update.

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

£10k invested in Vodafone shares a decade ago is now worth…

Despite paying big dividends, Vodafone shares have produced negative overall returns over the last decade meaning investors have lost money.

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Investing Articles

Hargreaves Lansdown investors are piling into BP shares for a 7% yield. Is that a smart move?

BP shares have tanked and the dividend yield's risen. Could there be a great opportunity here for long-term investors?

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Here’s the dividend forecast for Barclays shares through to 2027!

Should dividend investors consider buying Barclays shares to hold for the next few years? Royston Wild looks at the FTSE…

Read more »

Side of boat fuelled by gas to liquids, advertising Shell GTL Fuel
Investing Articles

4 reasons why I think the Shell share price fell on rumours the group wants to buy BP

The Shell share price responded negatively after newspaper stories emerged claiming that the energy giant’s considering buying its smaller rival.

Read more »

Investing Articles

Down 20% over the year, is GSK’s share price a stunning bargain after its Q1 results?

GSK’s share price has fallen significantly in the past 12 months, but this could mean it looks a major bargain…

Read more »