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For a moment around the beginning of last month, there was optimism in the air for shareholders of ITM power (LSE: ITM). The stock price rose almost 40% in one week. But since then, the shares have fallen back to stand at 2% from where they started the year. That means it’s still down 70% over the past 12 months.
What happens – and does it give me a buying opportunity to add this share of renewable energy to my portfolio?
a new plan
The surge in late January and early February came as the new chief executive announced plans to move the company. These include a more focused product portfolio, tighter cost management, and rigorous use of engineering benchmarking.
Investors are hoping for a change from the previous ITM story. It is one of the great technologies but limited commercial success – and massive losses. Revenue for the first half of the company’s financial year has now more than halved, to £2m. But the total comprehensive loss for the period was £56.8m. Yes, that number is true, even if it doesn’t look like it!
After the dust had settled, I felt investor enthusiasm was starting to cool again, driving down ITM Power’s share price.
After all, a plan is just a plan. So far, there is no evidence that the drug will be the drug that ITM Power needs. With a market capitalization of over £600m, the company still looks pricy to me until it concretely proves it has a viable business model.
A lot to prove
Will it happen?
I don’t think we’ll know for years, although there may be some indications this year. Even that is unclear, though. The company now expects full year revenue of around £2m. But it has produced a lot in the first half. So it seems that the remaining six months could be a housekeeping period during which there are not many new sales. At the end of the financial year, we may find ourselves in a very common ‘tomorrow’ situation for ITM shareholders.
Bringing focus to the company and sorting out the cost base seems like a smart and obvious move to me. However, these measures will not produce growth. Indeed, the product lineup can be reversed. I remain unclear about the speed and scale of the rollout for the future ITM Power sales model.
Show me the money
The new plan includes a price contract at a level that does not have to service losses. Again, it’s a smart and obvious move. But ITM already has a small sales trail and can now walk away from more deals than ever before.
The company has good technology. Reducing cash burn is clearly a priority and focusing on its strengths can help build a better and more profitable customer base. It all helps the company. But in the short term, the results of the new plan may not be so obvious. I think that could cause ITM Power’s share price to drop further from here. I have no plans to buy it.
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