Enovix Corporation (ENVX) stock has surged more than 40% over the past month alone, driven by significant game-changing deals that validated the business. In this article, we'll delve into ENVX's fundamental strengths and assess whether this small-cap battery stock is a worthy addition to your portfolio.
Enovix is a leader in advanced lithium-ion batteries. Its silicon anode design allows for greater energy density, discharge, and recharge rates, making it ideal for various applications, from military and government equipment to consumer electronics like cameras, PCs, and IoT devices.
Recently, the company has been a hot topic on social media, with enthusiasts claiming its transformational battery could transform consumer electronics and electric vehicles. However, only some are convinced. Critics question the viability of its ambitious claims and argue that the stock is overhyped.
Adding to the concerns, the company has faced significant challenges, including significant losses in its latest quarterly report and a substantial reduction in its workforce. Last quarter, the company generated just $5 million in revenue, with analysts predicting further declines. This is quite alarming for a company with a market capitalization exceeding $2 billion.
Despite these issues, shares of ENVX have surged 105.6% over the past three months and 25.3% year-to-date to close the last trading session at $15.69.
Here’s what could influence ENVX’s performance in the upcoming months:
Recent Developments That Claim to Hold Promise
On June 26, ENVX signed a memorandum of understanding (MOU) with Elentec, an Asian consumer electronics battery pack manufacturer that supplies major companies like Samsung. This partnership marks a significant step for Enovix, enhancing its vertical integration and establishing a foothold in South Korea. The MOU broadens ENVX’s market reach into wearables, hearables, medical devices, industrial equipment, and even the South Korean military.
A day before, the company signed an agreement with a leading California-based technology company to supply silicon batteries and packs for a mixed reality headset. This venture into the mixed reality space comes at a time when global shipments of virtual reality and augmented reality headsets are expected to grow significantly, from under 10 million units in 2024 to over 35 million units by 2028.
On May 1, ENVX entered its first development agreement with a top 5 smartphone OEM and plans to sample its batteries with 6 of the top 8 smartphone OEMs globally. If successful, this could significantly boost demand for Enovix’s advanced batteries.
Moreover, it intends to produce silicon batteries at its Fab2 site in Malaysia. Initial production will come through 1 Gen2 Autoline, which has the capacity to produce 9.5 million batteries annually at a rate of 1350 units per hour. That said, management expects future lines to operate at a run rate of 1650 units per hour, translating to around 11.6 million batteries per year.
Weak Financial Performance
In the first quarter that ended March 31, 2024, ENVX revenue amounted to $5.27 million (down by 28.4% sequentially), while its total operating expenses grew 33.9% from the year-ago value to $68.34 million. Enovix’s non-GAAP loss from operations saw a worrying 59.3% year-over-year increase, widening to $54.29 million.
The company’s non-GAAP net loss amounted to $51.65 million or $0.31 per share, a significant increase compared to $31.61 million or $0.20 per share in the prior year’s quarter. In addition, its adjusted EBITDA loss for the quarter stood at $26.34 million.
Net cash outflows from operating activities totaled $35.04 million, up 36.8% from the previous year’s outflows of $25.61 million. The company’s cash and cash equivalents were $222.15 million as of March 31, 2024, compared to $233.12 million as of December 31, 2023.
Mixed Analyst Estimates
Analysts expect ENVX to post a loss per share of $0.30 in the second quarter ending June 2024, indicating a 27% year-over-year increase. Moreover, its EPS is expected to remain negative in the fiscal years 2024 and 2025.
However, its revenue for the current quarter is expected to increase significantly from the prior year to $3.75 million. For the fiscal year ending December 2024, the company’s revenue is expected to reach $21.68 million, reflecting a 183.7% improvement from the previous year.
Elevated Valuation
In terms of forward EV/Sales, ENVX is trading at 114.81x, which is significantly higher than the industry average of 1.79x. Similarly, its forward Price/Sales multiple of 117.84 compares unfavorably above the industry average of 1.42. Also, the stock’s forward Price/Book ratio of 16.28x is 510.9% higher than the industry average of 2.67x.
Weak Profitability
ENVX’s trailing-12-month Return on Common Equity of negative 69.02% is lower than the industry average of 12.50%. Likewise, its trailing-12-month ROTC and ROTA of negative 33.05% and negative 36.71% compares to the industry averages of 7.16% and 4.91%, respectively. In addition, the stock’s 0.03x trailing-12-month asset turnover ratio is 96.4% lower than the 0.79x industry average.
POWR Ratings Reflect a Weak Outlook
ENVX’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ENVX has an F grade for Value and Quality, which is consistent with its extremely elevated valuation and lower profit margins. Also, it has an F grade for Stability. ENVX’s 24-month beta of 3.19 justifies the Stability grade.
Within the Industrial - Services industry, ENVX is ranked #77 out of 78 stocks.
Beyond what I have stated above, we have also given ENVX grades for Growth and Momentum. Get all ENVX’s ratings here.
Bottom Line
As the company is nearing an inflection point in its business, it faces inherent risks tied to its technology and potential capital needs for expanding production capacity. While ENVX's battery technology holds promise, its adoption by OEMs remains unproven, leaving room for adjustments in battery chemistry or dimensions to meet smartphone requirements. Despite management's expectation of adequate liquidity through 2026, there needs to be more certainty around funding future Gen2 production lines, potentially necessitating capital raises.
Given ENVX’s weak financial performance, stretched valuation, decelerating profitability, and dim growth prospects, it could be wise to avoid investing in this stock.
Stocks to Consider Instead of Enovix Corporation (ENVX)
Given its uncertain short-term prospects, the odds of ENVX outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks from the Industrial - Services industry instead: Resideo Technologies, Inc. (REZI), EMCOR Group, Inc. (EME), and Itron, Inc. (ITRI).
To explore more A and B-rated industrial service stocks, click here.
What To Do Next?
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ENVX shares were trading at $14.97 per share on Friday afternoon, down $0.72 (-4.59%). Year-to-date, ENVX has gained 19.57%, versus a 15.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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