ENVX - Enovix: Take Charge Buy This

2023-06-05 11:14:26 ET

Summary

• Enovix Corporation continues to move forward in ramping up its production at a rapid rate, including key hires in Malaysia.
• A discussion of the Enovix capital raise, plus a capital commitment from insiders.
• Enovix's business model is expected to see 50% gross margins.
• Malaysian Fab 2, once fully ramped up in 2024-2025, could see around $370 million in revenues.

Investment Thesis

Note, Enovix Corporation ( ENVX ) is a pre-revenue business . That means that it's not yet generating revenues and isn't expected to start reporting revenues until 2024.

That being said, there are mighty prospects for this name.

All the cells we've been shipping over the last few quarters are now in qualification and take numerous quarters till those qualifications are done.

But we're still on schedule exactly how we thought that in the back half of this year we'll start seeing customers put products into the market with our batteries in them. (Q1 earnings call .)

Enovix's long-term prospects aim for 50% gross margins and 30% EBIT margins. The business managed to raise important capital this quarter, and its production is guided for 2023 to jump 10 times that of 2022.

For now, Enovix's batteries are only being aimed at wearables. But the long-term goal is to be in mobiles and laptops.

Why Enovix? Why Now?

Enovix fits into my Future Energy portfolio. I'm striving to marry up 3 different aspects:

• Future tech
• Tremendous energy demand requirements stemming from AI
• Investing in the materials that enable the great energy transition.

Enovix's business is about creating batteries that allow wearable devices to maximize their output capacity. For example, one limitation of devices is phones' batteries overheating, limiting their full functionality.

Case in point, a mobile phone has substantial capacity in its chips, but it limits the number of simultaneous functions, so it doesn't overheat.

Enovix's near-term end markets are smartwatches and medical monitoring devices, as well as other IoT wearables.

2023 Prospects Are Lining Up

The business is running at full speed, while raising funds, to produce millions of batteries for top tier 1 tech businesses. Presently, leading global OEMs (original equipment manufacturer) customers are trialing the batteries and their rollout is expected to start slowly.

The biggest takeaway from its recent result, is that Enovix has raised capital, by diluting shareholders by 7%. This will has provided Enovix with cash to allow Envoix's full cash spend this year to be around $240 million, including approximately $130 million in the form of capex.

Enovix has customers trialing and designing consumer products that will have these $5 and $10 batteries. But until Enovix is running at full production , with deep inventory, customers won't be using their batteries, because customers want to have conviction that they won't design their products and have Enovix let them down. It's a chicken and egg element.

Simply put, Enovix needs to show potential customers that Enovix can seriously get closer to millions of 50 million batteries at full capacity, from the less than 20K it will produce this quarter.

Fully Committed Chairman

Enovix Corporation chairman Thurman (''TJ'') Rodgers holds a significant amount of shares. Roughly speaking, there's $300 million worth of capital on the line.

And on top of this, Rodgers has also been buying more shares in the open market in the past few months

The Bottom Line

To be perfectly clear, Enovix Corporation is in the process of laying down the groundwork so that in 2024 it can be running at maximum production and get customers to pay for their products.

As I stated at the start, Enovix is a pre-revenue business. Please be alert to this investment risk.

But when its revenues start to come in, Enovix Corporation should get to around $380 million of revenues and see about 30% EBIT margins, meaning around $100 million and more in operating profits. That means that the stock is priced at 20x future operating profits. This estimate assumes a 6% total addressable market in 2026.

For further details see: