Should investors buy ITM Power shares today?

ITM power (LSE: ITM) shares have taken a big hit recently. A year ago, they changed hands for around 350p. But today, it can be picked up for less than 100p.

Is this a good opportunity to buy a popular renewable energy stock? Or is ITM Power showing a risky proposition from here? Let’s have a look.

An exciting growth market

I can see why many investors are bullish on this stock. ITM Power specializes in hydrogen energy solutions and the market for these solutions – which can be used for refueling vehicles, heating homes, and power industry processes – seems to be huge.

According to Precedence Research, the global green hydrogen market will be worth about $90bn in 2030, from less than $2bn in 2021. That equates to an annual growth of more than 50% per year, which is huge.

Meanwhile, ITM has partnered with several major players in the industrial/energy industry including Linde, shelland Orsted. So there seems to be a lot to do.

Stock price risk

But digging deeper, there are some issues that concern me from an investment perspective. One is that the company has a history of disappointing on the revenue front.

When I last covered the stock in October, City analysts expected revenue of £37m for this financial year and £87m for the next. They now expect profits of between £25m and £47m. They are big downgrades. When the company warned about revenue in October, the stock fell 35%.

It is worth noting that in December, the company announced that it was suspending the planned trading update to provide the new CEO Dennis Schulz with enough time to assess the company’s operations. However, it may indicate the company is experiencing some other revenue challenges.

High value

Another problem for me is that the price remains high. ITM Power is not profitable (which increases its own risk) so it does not have a price-to-earnings (P/E) ratio. But it does not have a price-to-sales ratio and that is now about 24. That times lofty and increases the risk for the case of investment.

Short sellers are peeing

Perhaps the biggest problem for me is that the stock is being aggressively shorted by hedge funds right now (meaning they’re going against it).

Data from the Financial Conduct Authority (FCA) shows ITM Power currently has 5.9% short interest, making it the second most shorted stock in London Stock Exchange.

However, this data only focuses on short positions reported to regulators. My research tells me that the actual short interest figure is closer to 12% because about 52.4 million shares of ITM are currently on loan. To me, this is a huge red flag because short sellers usually do their research.

It’s worth noting that short sellers made huge profits last year by selling off speculative renewable energy/decarbonisation stocks. I wouldn’t bet against them.

My view on ITM Power stock

Putting all this together, ITM Power stock looks like a risky bet today. So, personally, I wouldn’t buy it.

All things considered, I think there are better growth stocks for investors to buy today.