Novonix Ltd (ASX: NVX) was the most-traded share on the ASX last week, overtaking some of the more well-known names such as Brainchip Holdings Ltd (ASX: BRN) and Zip Co Ltd (ASX: Z1P).
If you’re a big believer of the story behind Novonix, the good news is that you’re now able to pick up shares at nearly half price to where they were at the beginning of September. From their high of $1.99, Novonix shares now trade at $1.13 at the time of writing.
What does Novonix do?
Novonix develops and commercialises ultra-long-life high-performance anode material for the lithium-ion battery market. The company is focused on electric vehicle and energy storage applications that demand long life and high performance.
FY20 came with some exciting new developments, such as signing an agreement with Samsung SDI, an international manufacturer of lithium-ion batteries.
New manufacturing technology was also announced in June and the company plans on commercialising the process in the current financial year.
What happened to the Novonix share price?
Speculation was in the air when it was rumoured that Tesla Inc (NASDAQ: TSLA) would potentially be using Novonix’s technology in its electric vehicles. This hype was leading up to Tesla’s “battery day” which unfortunately wasn’t able to confirm the rumours involving the two companies.
Since battery day, the market’s perceived valuation of Novonix shares has plummeted from a market capitalisation of around $700 million to its current level of around $350 million.
I think this company has some really interesting long-term prospects, backed by some well-known substantial shareholders such as Regal Funds Management which acquired 14.45 million worth of Novonix shares in June this year.
I think the hype caused the market to get ahead of itself here. Buyers flooded the market and attributed a $700 million valuation to a company that makes around $4 million a year in annual revenue.
My thoughts
I personally don’t like buying into stocks that are contingent on some other event happening, e.g., Mesoblast Limited (ASX: MSB). That’s not to say Novonix won’t do well in the longer term, I would just prefer to invest in companies that have stable, predictable cash flows with a well-aligned management team.
That’s why I’m more interested in companies like Integrated Research Limited (ASX: IRI) and Xero Limited (ASX: XRO) because their business models allow them to scale efficiently as they grow in size.
Both of these companies are software providers. Once a piece of software is written, it doesn’t have to be written again. This is one of the most attractive features of the SaaS model, and I think both of these companies are well-positioned to take advantage of it due to the importance of the services they provide.
Integrated Research shares have been going through a significant pull-back recently. Click here to read my article that explains why I think it could be in the buy-zone.
Xero is more expensive on a nominal basis, but my article here explains why I think it has even more room to grow.
