Enovix Corporation (ENVX) designs, develops, and commercially manufactures an advanced silicon-anode lithium-ion (Li-ion) battery using its three-dimensional (3D) cell architecture.
In order to capitalize on the growing demand for batteries to drive the electrification of mobility, power the ever-increasing digitization of lifestyles, and manage the intermittency of renewable energy production, on March 9, ENVX announced that its first high-volume manufacturing facility (Fab-2) would be located in Penang, Malaysia.
This has generated interest and optimism among investors. With an average-10-day volume of 5.45 million coming in above its average 3-month volume of 4.72 million, ENVX’s stock has gained 25.8% over the past month to close the last trading session at $13.57.
Let’s take a closer look at the factors that could influence ENVX’s performance in the months ahead.
Weak Financials
The good news is that ENVX has started generating revenue. However, on the downside, the company's cost to generate revenue significantly exceeds the cost incurred without revenue generation and the revenue itself.
As a result, for the fourth quarter of the fiscal year that ended January 1, 2023, ENVX’s revenue came in at $1.09 million due to custom cell shipments for both the U.S. Army and a lead mobile communications customer, while its gross margins came in at negative $9.26 million, compared to negative $0.12 million during the previous year quarter.
ENVX’s adjusted EBITDA loss for the quarter widened by 27.9% year-over-year to $25.97 million, while its non-GAAP loss from operations widened by 54% year-over-year to $31.98 million. The company’s non-GAAP net loss widened by 40.5% and 26.7% year-over-year to come in at $29.15 million or $0.19 per share, respectively.
For the fiscal year ended January 1, 2023, ENVX’s revenue came in at $6.20 million, while its gross margins came in at negative $17.04 million, compared to negative $1.97 million during the previous fiscal.
ENVX’s adjusted EBITDA loss for the fiscal year widened by 45.9% year-over-year to $83.54 million, while its non-GAAP loss from operations widened by 64.4% year-over-year to $96.69 million. The company’s non-GAAP net loss widened by 55.2% and 18% year-over-year to come in at $91.51 million or $0.59 per share, respectively.
ENVX’s total assets came in at $440.59 million as of January 1, 2023, compared to $482.57 million as of January 2, 2022.
Poor Profitability
ENVX’s trailing-12-month gross profit margin of negative 274.70% stands out in stark contrast to the industry average of 29.94%.
Moreover, the company’s negative ROCE, ROTC, and ROTA also compare with the respective industry averages of 13.83%, 7.05%, and 5.20%.
Bleak Outlook
ENVX’s loss per share for the first quarter of the fiscal year that ended March 31, 2023, is expected to come in at $0.25, compared to an EPS of $0.28 during the previous-year quarter.
For the fiscal year 2023, ENVX’s revenue is expected to decline by 43.9% year-over-year to $3.48 million, while its loss per share is expected to widen by 79.7% year-over-year to $1.06.
Stretched Valuation
Due to ENVX’s emerging top-line and increasing expectations of its shareholders, the stock’s valuation increased to levels the company could find challenging to justify and sustain.
ENVX’s forward EV/Sales multiple of 300.33 is astronomical compared to the industry average of 1.62. Similarly, its forward Price/Sales and Price/Book multiples of 351.95 and 5.57 are exorbitant compared to the respective industry averages of 1.31 and 2.40.
POWR Ratings Reflect Weakness
ENVX has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. ENVX also has an F grade for Stability, justified by its 24-month beta of 2.71 and the spread between its 52-week high and 52-week low prices of $26.30 and $6.50, respectively.
Moreover, ENVX has an F grade for Value and Quality, in sync with its stretched valuation and unimpressive profitability. Analysts’ estimates that betray significant room for improvement have been reflected in its D ratings for Growth and Sentiment.
Unsurprisingly, ENVX is ranked last among 78 stocks in the A-rated Industrial-Services category. All POWR Ratings for ENVX can be found here.
Long Way to Go
In its letter to its shareholders, ENVX’s management has identified the company’s progress toward producing high-capacity battery cells for customers who have qualified its product as the barometer of its long-term success. However, it is only expected to commence production in 2024.
Hence, it would be a while before the company can benefit from economies of scale. Until then, that would be crucial for a meaningfully positive bottom line.
Bottom Line
In view of its weak fundamentals and a long and uncertain path to profitability, it would be wise to avoid ENVX, at least until its first high-volume manufacturing facility in Malaysia, capable of churning out 38 million to 75 million batteries a year, is up and running.
Stocks to Consider Instead of Enovix Corporation (ENVX)
The odds of Enovix Corporation delivering sustained risk-adjusted returns seem greatly 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:
EMCOR Group, Inc. (EME)
IES Holdings, Inc. (IESC)
Limbach Holdings, Inc. (LMB)
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ENVX shares were trading at $13.28 per share on Tuesday afternoon, down $0.29 (-2.14%). Year-to-date, ENVX has gained 6.75%, versus a 8.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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