ITM Power Stock Down 14% Today – Time to Buy ITM Stock?

The price of ITM Power stock is dropping more than 14% during this morning’s stock trading action following the release of a downbeat full-year financial report that featured a 6% drop in the company’s revenues.

Most of this slowdown was caused by lower grant-related revenues while the firm’s negative adjusted EBITDA expanded from £18.1 million during the previous year to £21.4 million amid ongoing COVID-related disruptions and other negative factors.

Additionally, the company’s cash burn accelerated from £23.3 million to £32.7 million, primarily due to higher capital expenditures required to further fuel the company’s top-line growth.

Moving forward, the management stated that the business’s near-term outlook remains positive as demand for large projects is elevated compared to historical patterns amid net-zero emission goals set by big corporations around the world.

Can this single-day downtick be an opportunity to buy ITM Power stock at a lower price? In the following article, I’ll take a look at the firm’s price action and fundamentals to possibly answer that question.

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ITM Power – Technical Analysis

The price action for ITM Power stock has been choppy lately as the stock has failed to fully reverse the downtrend that started back in January this year after another disappointing earnings release.

Back then, the company also announced that it had incorporated a joint venture with Linde called ITM Linde Electrolysis.

A short-term bottom was found at the 332p level as the stock progressively recovered some of the lost territory in the weeks that followed but the price action failed to climb above its 27 April lower high.

This choppy price action has formed what could be the left shoulder and head of a head and shoulders pattern that exhibits a plausible neckline at 355p. Even though it is still very early to tell if such a pattern will play out as expected, it remains a formation to keep an eye on in the following weeks.

For now, that proposed neckline remains the key support to watch if this downtick accelerates and it seems plausible that a retest of this level will take place resulting in a total short-term downside risk of 11.5%.

Momentum oscillators are favoring a bearish outlook as well as the MACD has moved below the signal line – typically considered a sell signal – on the back of steadily rising negative histogram readings.

ITM Power – Fundamental Analysis

Sales of ITM Power remain fairly small as the company is still in the process of fine-tuning its solutions, products, and services to a point that they can be commercialized at a larger scale. Revenues have remained within £5 million in the past few years while gross profits are still negative.

The company reported a total of £176 million in cash and equivalents by the end of this past fiscal year amid a successful share offering that took place in October 2020. This resulted in a significant expansion in its share count from 398.18 million shares to 507.26 million.

Moving forward, the company’s ability to keep complete key projects, secure new contracts, and maintain its cash burn in check will play an important role in shaping its stock price.

At its current price of 397.8p per share, the business is being valued at nearly 92 times its tangible assets. However, most of the value of ITM Power is derived from its intangibles including its patented technology, trademark, and customer relationships.

By the end of this fiscal year, the company had no relevant long-term financial commitments.

ITM Power is considered an emerging business which means that the company has not yet fully realized its potential. Investing in this kind of business involves a fair deal of risk as the company has not yet proven its ability to produce positive top and bottom-line results.

Back in October 2020, ITM Power sold shares at an indicated price of 235p per share. At today’s levels, the price is trading 68% above that valuation.

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