Electrovaya Inc. (EFL-T)

EFL is a manufacturer of lithium-ion cells and battery systems, which are crucial for the transition to electrification of vehicles. EFL’s operating results have been good in recent quarters and the stock is now trading at 24x times' EV/EBITDA. In the 2Q, EFL’s revenue grew 144% to $10.5M, beating estimates of $10.2M, and adjusted EBITDA was $0.8M, compared to a loss of -$1,1M in the same period last year. The balance sheet is decent, with net debt of just $18M. However, the company is still burning cash, with the trailing twelve-month cash flow being negative -$8.0. Based on consensus estimates, sales are expected to grow by around 60% on average over the next few years.

Overall, EFL is currently in hyper-mode growth, profitability has been improved (adjusted EBITDA), though the company is still burning cash and it may take many years until the company can sustainably generate healthy cash flow. We would be okay entering here for high risk small cap investors only, while being mindful of its size risks. However, we consider the name to be highly volatile and would size the position appropriately.
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They reported weakening revenue and earning numbers for the last few quarters. Management attributes it to reduced order volume due to component shortages, and supply chain disruptions. There is some credibility with repeat purchases from large firms. Could start a high risk small position with an understanding that it could be volatile. Unlock Premium - Try 5i Free

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The company has been growing revenues well and has paid off a debenture. Revenue growth is expected to pick up and the company should be profitable this year. Trading at around 10x revenue and 41x expected earnings. A good prospect for the battery space. Unlock Premium - Try 5i Free

They make batteries for e-cars, a big player there. But it's a very small stock, so be careful. If you buy, make it a small part of your portfolio. Also, carmakers could develop their own next-generation batteries internally, so that's another caveat. It will take a while for e-cars to come to market, not till around 2025 when the big car companies compete with Tesla. Maybe those big carmakers will externally pick EFL as their battery--and that would be huge for EFL. If not, then EFL will languish as a penny stock.

(A Top Pick July/16.) *Short* Up 74.69%. A lithium ion battery company. Made an acquisition in Germany, and the head of the company had to pay $250,000 to OSC over a disclosure that the OSC felt was a bit rosy. His analysis suggests this is worth significantly less then the current share price.

There was a press release today with regards to a sale or a purchase order. About a year ago he had this as a short pick and it came down considerably. They missed the target considerably. He feels he is missing something on this stock.

Last summer the company was talking about sales execution of $350 million from 2016 to 2018. He questioned that. They were about a third of the way through their fiscal year and were predicting executed sales of $180 million. First-quarter results came in with only $1.1 million. In November, the OSC put the company under a disclosure review, and so they had to put out a press release rewording the press releases. Also, had to amend their annual information form. Expects there may be a further delay in the roll-out of their mass production. He calculates they are sitting on 4 years’ worth of inventory from their German plant that they acquired. Thinks they are going to have to do an equity issue and there is going to be dissolution of some existing shareholders. There are better places to put your money.

It has gone up quite dramatically because of announcements. We need to see the money. You have to be skeptical with a small cap stock doing this. It is quite interesting in the battery space.

He still has a Short position on this, and his conviction is even stronger. There was a conference call today, which didn’t have a good set of results. Management has really talked the big game on this, and there are huge expectations. They talked about “sales execution” and the announced value of this was $356 million US. He is very dubious about many aspects of this company and its story. There are very few shares that are available to be lent out, so if the CEO and the major shareholders really have so much confidence in the stock, why don’t they lend out their stock?

(Market Call Minute.) This is playing the lithium theme, and they have won a bunch of contracts. It is too soon to tell on this one.

(Market Call Minute.) A company with a giant market cap with revenues not quite there, with lots of memoranda of understandings, but not that many contracts. Very interesting, but way too expensive.

*SHORT* Up 400% year to date. He hasn’t had this much conviction in a Short idea since Valeant (VRX-T) last year. First this is a sexy sector, lithium ion batteries. Then you spice it up even more by a few references to Tesla Motors, or Elon Musk. Mix in the leading edge technology that the previous owners paid you to take off their hands, and finally throw in some huge potential sales agreements, memorandum of understanding or Letter of Intents, with a prospect of more to come. A 20-year chart shows a series of very sharp peaks and valleys. The current CFO has been leading the firm since its IPO (2001?). Management has a history of overpromising and underdelivering. Thinks there will be a financing coming, and thinks it will be through an equity issue.

This has always been at the forefront of the lithium ion battery, and continues to do so. Tesla is not the only game in town, and this company provides an alternative competitive product which should find a home in the auto sector and other places where ion batteries are.