ITM Power: should I buy it for my Stocks and Shares ISA?

ITM Power (LSE:ITM), which designs and manufactures hydrogen energy storage, has become one of the UK’s most popular shares in 2020 and 2021. 

Hargreaves Lansdown investors are buying the stock in droves. ITM Power currently sits in the top 10 list of the most bought UK shares among the likes of easyjet, Bitcoin miner Argo Blockchain, electric car giant Tesla and FTSE 100 stalwart Lloyds Banking Group.

Since November 2020 it has added 150% to its share price. The question for me is: am I too late to buy this stock and make gains? At a price of around 630p should I add ITM Power to my Stocks and Shares ISA?

ITM Power is a future play

Let’s look at today’s valuation for the South Yorkshire firm. The share has amassed a market valuation of £3.6bn on reported full-year 2020 revenues of just £3.29m. Losses over the 12 months to 30 April 2020 rocketed to £29.4m, from £9.35m the previous year.

It’s not unusual to see companies build very large market caps even while reporting many years of losses. Elon Musk’s Tesla, for example, has only reported a single period of profit on its way to becoming the seventh most valuable company on earth. Investor appetite for the electric vehicle pioneer supports an $830bn valuation today. 

Hydrogen fuels net zero boom

Hydrogen could form a key part of the world’s net-zero-carbon future. So ITM Power could profit heavily.

But there are significant risks. Recent research by the Edison Group, for example, highlights that while hydrogen stocks have soared, there are pitfalls along the way. 

It writes: “Many potentially viable parts of the market will not reach self-sufficiency unless governments provide investment [and] explicitly encourage hydrogen adoption.” And at higher valuations, hydrogen companies are “highly sensitive” to setbacks. 

The report adds that while hydrogen’s high energy-to-mass ratio makes it ideal to replace fossil fuels in industry, in road, sea and air cargo, it likely won’t power cars.

More power

My own research suggests that there’s a way to go before hydrogen hits mass markets. The energy content per volume of hydrogen is only a quarter of other gases like methane, for example. So to transport the same amount of energy we would need larger diameter pipes compared to natural gas.

Hydrogen is also a volatile gas so would require different kinds of pipelines. If we disregard these problems and say hydrogen should be produced locally, it produces a new set of issues around storage. 

The real question for me is this: can ITM Power one day turn a profit? It’s possible. It certainly has potential, demonstrated by a flood of good news recently. The completion of its 1GW Gigafactory in Sheffield is a positive. As is January’s announcement of a joint venture with hydrogen plant giant Linde in Germany.

I think ITM Power could have a place in my Stocks and Shares ISA as part of a diversified portfolio. 

I’ll keep my FTSE 100 and FTSE 250 dividend income payers for steady gains. But I wouldn’t mind grabbing a slice of the rise of hydrogen power either.