Key points:
- ITM Power shares plunged 35.2% after revealing manufacturing delays.
- In addition, investors reacted badly to news that its revenues would be lower.
- However, today’s decline seems like an overreaction. Here’s why.
The ITM Power plc (LON: ITM) share price plunged 35.2% after warning investors that it had encountered delays in manufacturing its latest generation of stack modules, the 2MW MEP 2.0 stack. The delays were experienced in the final tooling and testing of the new stacks, which is expected of any new technology.
Investors reacted negatively to the company’s admission that its full-year revenues would be towards the lower end of its current guidance of £23 million – £28 million. However, the company expects to deliver 48MW-65MW of its products by the end of the year and has a backlog of customer orders.
Also read: Five Best Green Energy Stocks In 2022.
The energy storage and clean fuel company revealed that due to the delays, it needed more testing at its customer’s premises to determine the correct warranty provisions for the new products. As a result, it was unsure of its total warranty liability exposure.
Investors were scared to see the company admit that it was unsure of its warranty liability, which could affect its bottom line, which explains the massive plunge in ITM shares. However, investors ignored the company’s assertion that its warranty estimates will improve once it delivers more customer orders.
ITM Power further highlighted its strong balance sheet with cash reserves of £320 million. The company expects a balance of £240-270 million at the year’s end after deducting the costs associated with capital expenditures and lower inventor build.
Furthermore, investors preferred to avoid the expected delays in finalising the financial close of some of its ongoing contract negotiations as the company works to reduce its overall warranty exposure. Still, ITM Powe remains a promising company in the sustainable energy industry.
So, would I buy ITM Power shares now? The short answer is not yet. ITM shares are down 83.11% this year, driven by sour investor sentiment towards the industry. I would keep it on my watchlist and look for signs that the stock is recovering before buying.
*This is not investment advice.
ITM Power share price.
ITM Power’s share price plunged 35.19% to trade at 67.69p, falling from Wednesday’s closing price of 104.45p.