It’s no secret that Rolls-Royce shares have been an incredible investment in recent years. After tanking in 2020, they’ve shot up spectacularly. The question is – who will be the next Rolls-Royce?
Could it be clean energy stock ITM Power (LSE: ITM), which is experiencing a similar share price rebound at the moment?
A game-changing deal
It’s an exciting time to be an investor in ITM Power. That’s because the company – which specialises in green hydrogen solutions – has a lot of momentum.
For example, last month, it signed a deal with European defence powerhouse Rheinmetall. This will see the company potentially deploy several hundred production plants for Rheinmetall’s Giga PtX project, where the goal is to establish a Europe-wide network of decentralised synthetic fuel production plants to strengthen defence energy resilience.
This deal – which puts a rocket under its share price – looks like a game-changing moment. That’s because it offers the group the opportunity to roll out its green hydrogen solutions at scale.
Other key developments
This deal is just one of many the company has signed lately though. Others include:
- A 10-year Long-Term Service Agreement with MorGen Energy for the West Wales Hydrogen project, to provide maintenance and support to the plant in operation.
- A deal with Octopus Energy Generation to deploy its NEPTUNE V containerised green hydrogen systems at Kimberly-Clark‘s Northfleet manufacturing plant in Gravesend, Kent.
- A NEPTUNE V Basic Design Engineering Package contract with an industrial customer for a project in Australia.
- A NEPTUNE V Front-End Engineering Design contract for a project in Canada, which aims to produce hydrogen for transportation from hydroelectric power.
These have all come in the last six months. And they’ve significantly boosted the company share price.
ITM Power vs Rolls-Royce
A key difference between ITM Power and Rolls-Royce however, is profitability. Over the last few years, the latter’s has jumped dramatically due to a transformation plan implemented in early 2023. For example, last year, group operating profit was £3.5bn versus £2.5bn a year earlier. This has been a key share price driver as it’s pulled investors back in.
By contrast, ITM Power still isn’t profitable. And analysts don’t see the company’s bottom line turning black in the coming years. This could limit its base-level attraction as institutional investors tend to avoid unprofitable companies because they’re generally more risky. This, in turn, could restrict its share price growth.
One other difference worth mentioning is the valuation. When Rolls-Royce was near its low, it had a price-to-sales ratio under one, meaning it was really, really cheap. Today, ITM Power’s price-to-sales ratio is about 38. That means it’s actually quite expensive.
So it may not be the ‘next Rolls-Royce’.
Worth a look?
That said, ITM Power shares could still be worth considering as a speculative investment. It clearly has some effective clean energy technology and if it can keep winning deals and increasing its revenue, its share price may continue to rise.
‘Speculative’ is the key word here though. This is the kind of stock that could double or triple from here… or fall 80%-90%.
