The micro-cap space, and in particular, any space in which a company is competing against world-class firms such as Tesla Inc. (NASDAQ:TSLA) over innovation in the battery space, is a very difficult sector to operate in. As is the case with Canadian tech startup Electrovaya, Inc. (TSX:EFL), a company which holds a number of patents for lithium ion batteries which have been in the market for years, but which have failed to gain traction.
When the company’s stock price was trading around $2.30, I came out with my first short recommendation, highlighting a number of factors which have turned out to be stronger headwinds than I initially expected. The company’s sales numbers lagged far behind managements’ guidance, and are likely to continue to outperform given the lack of traction in the market as well as the inability of the company to sell its existing inventory which stands at sky-high levels.
The company has added more debt onto its books at extremely high rates of interest and is likely to engage in a secondary equity offering in the future, given the fact that the underlying business continues to run at a large deficit and cannot continue to operate without another injection of cash.
Unless the company is absorbed in an acquisition, I do not see any direction for the company’s equity value to go other than downward. I would reiterate my initial short thesis by stating that I do not foresee a future in which Elecrovaya can come close to its target revenue numbers, and have even less confidence in the company’s ability to turn a profit in the medium to long-term.
Invest wisely, my friends.
