After years languishing as a penny stock, ITM Power‘s (LSE:ITM) climbed significantly in recent years. And in 2026, it’s exploded even higher, surging 222% between January and late May. But since then, in the space of roughly two weeks, the shares have given back 30% of those gains.
Some profit-taking after a run like that is entirely normal. But could something more concerning be going on beneath the surface?
What drove the surge?
The catalyst for ITM’s extraordinary rally was a string of genuinely transformational announcements. In February, the company raised its 2026 revenue guidance by over 10% to £40m-£43m, citing strong project progress and contributions from recently secured contracts.
Then in April, ITM landed the biggest moment in its recent history: a combined £86.5m government backing package, comprising a £40m equity investment from Great British Energy and a £46.5m grant from the Department for Energy Security and Net Zero (DESNZ).
For a company that was trading in penny stock territory not long ago, this was a remarkable sequence of positive news. And it isn’t surprising to see its share price jump as a result.
So why are investors now getting nervous?
Two forces converged to trigger the sell-off. The first was mechanical.
ITM Power was added to the MSCI UK Small Cap Index at the start of June, forcing passive funds to buy an estimated $25m-$30m worth of shares. Arbitrageurs who had piled in ahead of the event used that guaranteed demand to exit their positions, triggering a wave of selling that rapidly turned into a rout.
The second was more fundamental.
Analysts at Goldman Sachs reiterated a Sell recommendation on the stock, nudging its price target only modestly to 63p – far below where the shares are trading today.
Digging a bit deeper, the core concern isn’t that the business is struggling, but rather that the valuation has gotten too far ahead of itself compared to the firm’s projected path to profitability. Yet, Morgan Stanley’s 170p share price forecast suggests there may be some hidden room for growth.
So has the recent sell-off secretly created a buying opportunity?
A high-risk, high-reward bet
ITM has a genuinely differentiated technology in PEM electrolysis. It enjoys repeat blue-chip customers including Shell, RWE, and Linde. And it has effectively received the blessing of the UK government to champion the country’s emerging hydrogen economy.
That’s not something a random start-up can just replicate overnight, giving the business a genuine competitive advantage over its current and prospective rivals.
This nonetheless remains a pre-profit enterprise scaling an unproven next-generation technology. And many of its recently-secured blockbuster contracts are for projects still several years away.
So where does that leave investors today?
The bottom line
ITM Power is a genuinely exciting business operating at the frontier of the UK’s clean energy ambitions. And for investors seeking exposure to the nascent hydrogen sector, this business appears to be among the most established pure-plays on the London Stock Exchange.
However, the valuation does make me a little nervous, even after the 30% pullback. That’s not to mean this ex-penny stock could be doomed to fall further, but rather, investors should prepare and expect significant volatility moving forward. That’s why it’s staying on my watchlist for now.
Should you invest £5,000 in Itm Power Plc right now?
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Zaven Boyrazian does not hold any positions in the companies mentioned.
