Most penny shares fail to stay up to expectations. However in 2020, it appeared as if ITM Energy (LSE:ITM) may do no unsuitable. Shares of the hydrogen enterprise skyrocketed. And by January 2021, buyers who purchased shares only a yr earlier reaped a jaw-dropping 883% return!

Such features in such a brief area of time are nearly non-existent inside the world of large-cap FTSE 100 enterprises. That’s why penny shares stay so well-liked regardless of their excessive ranges of threat. However whereas ITM Energy surpassed a market-cap of over £2bn, momentum ultimately pale.

Investor pleasure turned to frustration as the corporate struggled to transition from research to industrial manufacturing. Order delays and missed earnings targets resulted in a gentle trickle of buyers promoting up and shifting on. And the as soon as £3bn+ enterprise with a 717p inventory price now sits at a £166m market-cap buying and selling at simply 27p per share – a 96% decline.

Such are the dangers of investing in unproven companies no matter their long-term potential. Nonetheless, regardless of what the route of the share price suggests, ITM Energy’s truly been making a variety of promising progress. So are we doubtlessly trying at first of one more near-quadruple-digit surge?

Demand’s heating up

It appears demand for inexperienced hydrogen is on the rise in Europe. ITM Energy has signed new contracts with clients for its Neptune electrolyser system, leading to a document contract backlog of £135m. On the similar time, income over the six months resulting in October jumped by 74.2%, reaching £15.5m. And administration continued to reiterate its full-year gross sales targets of £18m-£22m.

Income aren’t anticipated to materialise, however the group’s money place is on monitor to enhance, reaching £185m-£195m, giving administration ample monetary flexibility to proceed executing its technique.

Is a share price surge coming?

If ITM Energy can proceed constructing its order e-book and fulfil its obligations to clients, I wouldn’t be shocked to see the almost-penny inventory begin climbing once more. Having stated that, I doubt buyers are going to see one more close to 1,000% rally in 2025.

Hydrogen-demanding tasks throughout Europe are seemingly receiving the inexperienced mild to succeed in the ultimate funding resolution stage of mission planning. This undoubtedly provides ITM Energy a welcome tailwind on which to capitalise within the coming years. And with restricted publicity to the US markets, the agency’s future development shouldn’t be closely impacted by the chopping of environmental spending below the brand new US administration.

Nonetheless, even CEO Dennis Schulz stated: “Gone is the unrealistic hype that the hydrogen economy would develop overnight”, suggesting that an funding in ITM Energy as we speak is a long-term buy-and-hold dedication, not a short-term buy-low-sell-high commerce.

The underside line

Having been a critic of ITM Energy’s surge in 2020, my opinion on this enterprise has improved through the years, each as a result of extra affordable valuation and precise tangible outcomes being delivered. Nonetheless, even after falling by over 90%, the small-cap enterprise continues to be buying and selling at a premium relative to its money move.

For now, I’m sitting on the sidelines, patiently watching to see if administration can proceed capturing the growing hydrogen market.