After an unceremonious dumping over the past year, Novonix Ltd (ASX: NVX) shares are now going for less than a dollar. To be precise, shares in the battery materials technology company closed at 90 cents apiece on Wednesday, down 2.17% for the day.
The continuation of net losses has coincided with weakness in the formerly high-flying share price. On 1 December 2021, the Novonix share price reached an all-time high of $12.47. A year and eight months later, the unprofitable company is valued at less than one-thirteenth of its former glory.
However, amid bullish forecasts for electric vehicle (EV) demand — such as Goldman Sachs’ projection for half of global car sales comprising EVs by 2035 — could now be an opportune moment to add this battery contender to the portfolio?
Time to scoop up Novonix shares at 92 cents?
It’s only fair to consider both arguments for whether or not to buy Novonix shares right now. First, let’s unpack why this beaten-down battery company could be worth considering.
The positives
Assessing the valuation of an unprofitable company can be tricky. One metric often used is the price-to-book (P/B) ratio, which indicates how much of a premium investors pay over the value of a company’s net assets.
NVX chart by TradingView
Right now, Novonix investors would be coughing up $1.30 for every $1.00 in net assets on the company’s books. As shown in the chart above, the last time the premium on book value was this low was briefly in late 2018/early 2019.
As a point of reference, the combined constituents of the S&P/ASX 200 Index (ASX: XJO) are presently priced at 2.1 times book value. One might argue that Novonix shares are ‘undervalued’ at their current P/B ratio.
Secondly, $5.4 million in trailing 12-month revenue seems incongruent with a $450 million market capitalisation. However, the battery company plans to ramp up its operations soon.
Specifically, the first deliveries of anode material to Kore Power are slated for the fourth quarter of 2024. From there, Novonix hopes to scale anode deliveries from 3,000 tonnes per annum in 2024 to more than 30,000 tonnes per annum in 2025.
Another positive to consider is the company’s funding optionality.
According to its quarterly cash flow report, Novonix held US$99.1 million in cash on 30 June 2023. That’s not a lot of dry powder for a business trying to ramp up production while burning roughly US$55 million in cash over the past year.
Fortunately, a US$150 million grant from the US Department of Energy is still in the works. If secured, it may mean less reliance on further diluting existing shareholders.
The negatives
Now, to shed some light on why investors may still choose to pass on Novonix shares at less than $1 apiece.
Top of the list would arguably be the lack of proof that the company can operate at scale. Its facility at Chattanooga, Tennessee, exists. The furnaces required to produce EV-grade synthetic graphite are said to have “fully met specification targets”. However, we will only know if commercial scale is viable once Novonix attempts it.
Assuming it can, the next question is: if or when can it become profitable?
The other heavy question is whether Novonix will have the financial means to sustain itself in the future. The company is beginning to tap into various loans to fund its developments. Eventually, those debts will need to be paid.
Ultimately, whether Novonix shares are worth a buy under $1 will come down to if an investor believes the positives outweigh the abovementioned negatives. The speculative stage of the company means it is difficult to come to an answer based on fundamentals.
