Best stock to invest in
Last week management of Electrovaya
TSX; EFLVF: OTC/QB) were forced to issue a statement stating
there were no fundamental developments to explain a dramatic decline
in its share price. The stock was trimmed back by 30% in two
days under exceptional trading volume. Electrovaya has
developed proprietary lithium ion polymer batteries for grid storage
and transportation applications. Other than financial results
for the quarter ending March 2017, the Company has had little to
tell investors about the batteries, its customers or any other
Electrovaya distinguishes its lithium ion batteries among
competitors with a ceramic separator that improves battery
safety. Zero hazardous accidents have been reported for the
batteries with this innovation used in smart cars. Competitors
have reported battery failures some of which have resulted in car
fires. Inadequate insulation of electrodes is often cited as a
reason for such ‘thermal runaway’ in batteries.
The company’s business pipeline appears to be gaining volume.
During the last earnings conference call management reported new
orders in the materials handling sector. Additionally, one of
its battery modules in being tested for residential energy storage
applications in the U.S., Europe and Asia.
Management has characterized the year 2017 as a transition year for
Electrovaya. The company reported CDN$19.5 million in total
sales in the fiscal year ending September 2016. At
this level of production, gross profit was 25% of sale and not large
enough to cover operating costs. Nonetheless, greater
efficiency is expected as the company increases utilization of new
production capacity recently acquired in Germany.
The company used CDN$8.1 million in cash to support operations in
the 2016 fiscal year. Cash resources were dangerously depleted
at the end of September 2016, at CDN$668,000. A new loan of
$17 million has fortified the coffers. We estimate the company
has sufficient resources to support operations for at least another
year, longer if the pace of business picks up. An expansion in
order volume could lead to greater production efficiency is and
higher gross margin.
For investors with confidence in Electrovaya management to deliver
on its strategic plan, the dramatic decline in price represents a
compelling opportunity to pick up shares at a bargain price.
The company recently appointed a new director of sales for the U.S.
materials handling market. The plan is to build on recent new
relationship with a Fortune 100 company with a fleet of forklifts.
Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
– Best stock to invest in