ENVX - Enovix: Unleash The Performance Of Devices

2023-04-03 10:57:08 ET

Summary

• Enovix Corporation is set on doubling its production each quarter of 2023.
• The business isn't yet reporting consistent revenue growth rates. Also, the business is unprofitable.
• Its tie-up in Malaysia could be the catalyst Enovix Corporation stock needed.

Investment Thesis

Enovix Corporation ( ENVX ) is an advanced lithium-ion battery company. Keep in mind that the company isn't yet consistently reporting revenue growth rates.

But the company's guidance is nevertheless mighty alluring. More specifically, the company asserts that each quarter of 2023 will see its production double.

At the core of the investment thesis is, how to unleash the full potential performance of a wearable device.

Under this new management team, one can only hope that its trajectory in 2023 will be as rewarding as it sounds.

Why Enovix?

Enovix Corporation is focused on designing superior batteries.

Its 100% active silicon anode batteries deliver enhanced thermal performance, meaning less thermal heating and more capacity.

Within that statement is hidden the full potential and opportunity of ENVX. How to get the maximum performance out of a device without letting the device overheat.

2023 Could be Massive

Enovix Corporation is a loss-making and cash-burning business. That said, there's approximately $300 million of cash, equivalents, and no debt on its balance sheet .

Furthermore, its guidance points to a strong ramp-up in battery cell unit output from its Fab-1 facility. What's more, ENVX doesn't guide revenues, as its revenue is lumpy due to the infrequent service revenue.

But what ENVX does guide for is that its unit output exited Q4 2022 with just under 4.5K batteries being shipped, and that Q1 2023 will double from this figure.

Then, looking ahead to the rest of the year, the output is expected to double each quarter sequentially.

What's more, at the time of the Q4 results, ENVX's shareholder letter simply stated that it had engaged "government entities that have an interest in infusing capital to build out production lines." This line sounded like a typical boilerplate aspiration, that the market didn't put any interest into. Or better said, didn't give much consideration one way or another.

After all, this was a company that throughout 2021-2022, under the previous management team, somehow moved from one disappointment to the next.

However, last week, ENVX put out a press statement that put a spotlight on its non-binding Letter of Intent, that ENVX will be partnering with YBS to use some of its buildings in Penang, Malaysia.

This will be the first high-volume manufacturing facility, and YBS appears to be inclined to take a significant financial stake in ENVX's manufacturing operation.

Suddenly, everything comes together. Previously, this was a company that moved from disappointment to the next. Then, the company guides for a massive ramp-up in production, but investors couldn't see how that was seriously going to take shape.

And then, ENVX finds a highly motivated partner, YBS, that is interested in sharing the success of the company's vision and willing to put capital on the line.

And this leads me to the next consideration.

Capital on the Line

As you can see above, 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 then, last month TJ Rodgers and the recently appointed CEO Rajendra Talluri bought more stock in the company.

As you know, management can sell stock for many reasons, but they only buy stock in the company for one reason, because they believe the share price is going higher.

Investment Risks

There are obvious risks with this investment. Least of all, the business is burning through significant capital. For now, there's a lot of promise, but not much in the way of sustainable revenues.

Much of the promise behind this investment is in its patented technology. Simply put, that's not to say that there won't be better technological developments that could deliver superior performance specifications.

The Bottom Line

For more than 2 years, the Enovix Corporation share price has gone up significantly only to fall back to around $15. Every time investors got enchanted by some key development, the company failed to deliver against those expectations.

The big hope now is that the tie-up with YBS, the manufacturer of precision electronics, will provide Enovix Corporation with the funding and the laboratory space for ENVX to massively ramp its production capacity.

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