Image source: Getty Images Investors in ITM Power (LSE: ITM) shares have certainly felt the switch in investor sentiment recently. The hydrogen stock is down 86% inside two years! However, I think this decline in the share price now makes the ITM Power risk-reward proposition more attractive for me. Here’s why I’ve started a small position in the stock. Share price correction From 2018 to 2021, ITM Power shares went from 40p to 682p. Today, they’re back down to 98p. That still leaves the stock up 147% in five years. Yet full-year revenue for 2022 was £5.6m, not dramatically above the £3.3m posted in 2018. Meanwhile, losses have ballooned from £6.5m in 2018 to £46.7m last year. The market cap today stands at £606m. So despite the share price decline, the stock has a trailing price-to-sales (P/S) ratio of 108. The company will have to ramp up sales dramatically to start justifying this eye-watering valuation. But it’s ‘cheaper’ than it’s been for many years. Exciting technology Utilising hydrogen for energy purposes is not a new idea. In his 1875 novel The Mysterious Island, Jules Verne imagined hydrogen one day replacing coal as a fuel. The element would be split out of water to “furnish an inexhaustible source of heat and light”. ITM Power’s technology is now helping turn this fiction into reality. How? Well, hydrogen is abundant throughout the universe, but it’s most commonly found in water. ITM’s energy systems make it possible to separate hydrogen from oxygen in water using electricity (i.e., electrolysis). So using just water and renewable energy, its PEM electrolysers can produce green hydrogen. This has the potential to provide clean power for manufacturing, transportation, and more. The only by-product is oxygen, which can also be re-used by industry or vented into the atmosphere with no negative environmental impact. In theory, its technology is positioned perfectly to help the world decarbonise and achieve net-zero. Gale-force tailwinds I think it’s now obvious that the tailwinds for renewable energy are very powerful. China has declared its ambition to reach net-zero to mitigate global warming by 2060. Meanwhile, the US has declared its first Department of Energy “Earthshot” for green hydrogen. In the UK, the government has set out a target to double low carbon hydrogen production to 10 gigawatts by 2030. So the global demand for electrolysers to decarbonise production processes should accelerate. The market opportunity is certainly there. It’s just whether the company’s core technology catches on and whether management capitalise on the opportunity. That remains uncertain at this point. New leadership In November, the company appointed Dennis Schulz as new CEO. He has moved from Linde Engineering, where he gained significant experience in green hydrogen and decarbonisation markets. So on paper, this looks a good appointment. He will replace Dr Graham Cooley, who was CEO for 13 years. He led ITM Power through its transition from an R&D business to a manufacturing company generating revenue. It is hoped the new CEO will lead the company through its next transition, from a loss-making enterprise to a profitable one. How long that takes – and whether it will happen – makes investing in this stock risky. As such, it will remain a small position in the speculative side of my portfolio.

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