Following a corporate rebrand, the NOVONIX FPO (ASX: NVX) share price has skyrocketed 130% to $1.27 so far this year. Formerly known as Graphitecorp Limited, shares have boomed after the acquisition of Novonix, a player in the battery and electric vehicle industry.
Novonix is now aiming to "leverage the strong NOVONIX brand name in the battery industry where it is well known for manufacturing the world's most accurate battery cell testing equipment and for providing outstanding quality and customer service."
The recent quarterly update was full of optimism and positive updates regarding the battery industry, quoting recent decisions by Volkswagen to go mainstream with its electrical vehicles, and Volvo's decision to exit pure petrol vehicles entirely by 2020. Novonix obviously foresees big growth in demand for its services. However, I would sound a note of caution for investors as Novonix has not yet released its most recent quarterly report to show how much it might be earning.
Furthermore, the company's most recent quarterly report in April showed zero revenues, cash outflows of $1.4m in the 9 months year to date, and just $1.4 million cash at bank.
The battery servicing business may prove to be an interesting opportunity – the 'picks and shovels' strategy of providing ancillary services to an industry is typically better than the industry itself, particularly where the industry is highly competitive (electric vehicles) and/or commodity-focused (graphite).
However, in my view Novonix is not investment grade and I would wait at least to see a couple of quarterly reports (the next one should be out very soon) before deciding whether to buy its shares. At present, in my opinion the share price is founded largely on hype.
