Did you know Enovix’s 3D Silicon Lithium-ion battery technology has the potential to increase energy density by up to 50% over traditional lithium-ion batteries?
Despite its innovative capabilities, however, the company’s stock has fallen by 45% since July of this year. We investigate what’s going on with Enovix (NASDAQ:ENVX) and whether it can bounce back.
The Next Big Thing In Battery Technology
The battery market is set to be worth around $116 billion by 2027 according to Grand View Research and Enovix, which has pioneered a 3D Silicon Lithium-ion battery technology, is perched well to capitalize on it.
The company leverages existing semiconductor production equipment to cost-effectively scale up battery production, and the end result is an impressive increase in energy density by up to 50% versus conventional lithium-ion batteries.
It’s not easy for rivals to swiftly follow in its footsteps and compete on a level playing field because Enovix has been issued 94 patents with another 63 pending giving it an enviable headstart.
Its intellectual property forms a portion of its moat but so too do its partnerships with the likes of Elematec in Japan and Semicomtech, an IoT distributor in South Korea.
Combine those strengths with a focus on the fast-growing wearables market and you have a recipe for becoming the next big thing in battery technology. Incidentally, the wearable market is forecast to reach $265 billion in size by 2026 according to MarketsandMarkets.
With so much going for it, why has Enovix stock been dropping?
Financials Hurting Enovix
On paper, Enovix has a lot going for it, including a top tier leadership team that comprises former executives from Apple and Tesla.
Together, they have managed to build a strong balance sheet fortified with $343.2 million in cash, which is offset by about $175 million in debt.
The problem is no longer the balance sheet or the need for further capital infusions that would dilute shareholders, but rather the profit and loss statement, which continues to report virtually no revenues. That means every penny spent is essentially increasing losses with each quarter that goes by. And that in turn is eroding the cash pile.
It can’t be overlooked that earlier in the year, in order to strengthen the balance sheet, Enovix issued $150 million in debt via convertible notes at a 3% annual rate. These senior notes are not eligible for redemption until Q2 2026 at a conversion price of $15.61 per share.
The capital-raising initiative was primarily aimed at securing sufficient funding to acquire the machinery needed to build a new fabrication plant for battery cells and secondarily to cover day-to-day expenses.
The net result was a shareholder dilution of 7%, though investor concerns didn’t stop there. The inability to generate revenues more quickly triggered 4 analysts to downgrade the stock, though it must be said that, on the whole, analysts are quite favorably disposed to Enovix and have placed a $31.42 consensus target price on it.
Will Enovix Stock Rebound?
The drop in Enovix’s stock price was triggered when the company raised funds that diluted shareholders by 7% and concerns that revenue recognition would take longer to realize.
Analysts remain optimistic about the prospects for Enovix and it’s important to note that the core fundamentals of the firm’s patented 3D Silicon Lithium-ion battery technology remain promising.
It should not be underestimated too that Enovix is covered quite broadly by The Street. Indeed 12 analysts rate the stock, and the average price target of $31 per share is 158% higher than where the stock currently sits.
With a top tier management team leading a potentially disruptive technology and established partnerships already inked, Enovix has all the hallmarks of a company with a bright future.
Still, the proof will be in the pudding for more conservative-minded investors, who rightly need to see the P&L improve in order to ensure the extensive cash pile is not burned to a cinder.
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