Enovix (NASDAQ:ENVX) is one of several small, innovative companies hoping to create the next generation of batteries to power smartphones, wireless devices, electric vehicles and other electronics. The company, which currently has a market cap of $1.3 billion, has made some impressive strides in improving upon traditional lithium-ion batteries. The question now is whether Enovix has what it takes to successfully commercialize its batteries and deliver strong returns for its investors. Is Enovix an underrated small-cap stock to buy today, or does the company still have a way to go before it becomes appealing to investors?
What Sets Enovix Apart?
Enovix’s main claim to fame is it’s developed a viable silicon-anode lithium-ion battery. In standard lithium-ion batteries, graphite is used for an anode material. Those using a silicon anode can offer higher energy densities and faster charging times, but surface a number of problems in exchange.
In particular, silicon-anode batteries are subject to swelling due to the fact that the volume of a silicon anode can more than triple as it takes on lithium ions. This engineering problem has generally made silicon-anode batteries impractical in the real world despite their significant advantages.
Enovix has addressed this problem with its 3D silicon lithium-ion battery. The battery architecture provides all of the benefits of silicon-anode batteries while also being safe and reliable. The innovative approach to lithium-ion batteries has the potential to be enormously valuable as demand for more and better batteries picks up.
Enovix has the hallmarks of being a disruptive force in the lithium-ion battery market. Smart devices, electric vehicles and other battery-powered electronics are placing heavier and heavier power demands on battery technology that has improved but hasn’t fundamentally changed in multiple decades.
By successfully bringing silicon-anode batteries to market, Enovix could become a major competitor in the lithium-ion battery market. Given that this market is expected to grow at over 18% annually over the next decade to reach nearly $450 million by 2034, the financial opportunities for a company like Enovix could be enormous.
Enovix Is Already Revenue-Generating
Although the company is still very early in its growth story, it has established at least the beginnings of commercial proof for its batteries. The company generated about $23 million of revenue in 2024, up from just $7 million in 2023. Q1 saw revenues of $5.1 million, which was toward the upper end of the company’s guidance range for the quarter.
Despite the top line growth, Enovix is still losing money as it invests to increase its capacity and commercialize its technology. In Q1, management reported a net loss was $23.5 million, more than four times the revenues it brought in.
The good news, though, is that Enovix is in a relatively strong position to maintain this spending. As of the end of last quarter, the company’s reserve of cash, cash equivalents and marketable securities stood at $248.2 million.
The leadership team is still working to expand its commercial presence, especially by breaking into the smartphone battery space. It already has an initial smartphone customer lined up and is finalizing batteries for that customer.
Enovix is also working to expand one of its existing EV battery agreements. Both of these developments are likely to result in significant revenue growth in future quarters. For Q2, though, management has projected a fairly flat revenue range of $4.5 million to $6.5 million.
ENVX Trades at a High Valuation But Analysts Forecast Upside
At first glance, Enovix’s valuation may appear difficult to justify. The stock is trading at 52x trailing 12-month sales and 5.4 times book value.
Due in part to the massive market opportunity in front of it, however, analysts still expect to see extremely strong returns from ENVX.
The consensus target price for the stock is $17.60, up more than 165% from the latest close of $6.58.
What Are the Risks of Enovix?
Enovix’s most obvious risk is its lack of a considerable moat. With revenues still extremely small Enovix doesn’t have much of a foundational presence in the battery market. While this certainly could change as the company scales up, the absence of a durable competitive position could worry investors.
Closely tied to this is the fact that Enovix is a long way from being the only company trying to disrupt traditional lithium-ion batteries.
Competition is especially fierce in the EV space, where companies like QuantumScape are addressing the limitations of traditional lithium-ion batteries with solid-state battery architectures. This trend could also cross over into the smartphone realm, as electronics giant Samsung is already planning to roll out SSBs for smartphones and tablets by 2027.
Investors also run the risk of paying a price for ENVX that requires essentially a best-case performance scenario in order to justify. This valuation issue may go some way toward accounting for the fact that institutional investors have sold about $1.4 billion worth of ENVX in the last six months while buying only $924 million.
So, Is Enovix an Underrated Small-Cap Gem?
There’s little doubt that Enovix’s achievements in terms of solving the problems of silicon-anode batteries are impressive. The problem, however, is that the stock is trading at an extremely high multiple to sales on uncertain expectations of significant future market opportunities.
Although there’s every possibility that Enovix could become a major disruptor in the battery world, the company’s lack of an existing moat and the range of other companies trying to improve battery technologies make Enovix look both quite expensive and quite risky.
Taking this into account, Enovix may be a good small-cap stock to watch for more concrete signs of revenue growth and commercial success.
If successful, Enovix could be in for a very long period of growth, meaning that investors could likely still find buying opportunities once some of the uncertainties around the company become clearer.
While some high-risk tech investors may like the possibly massive returns of successfully identifying a disruptive battery company early on, ENVX may still be too risky to buy now.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.