Enovix Is Up 42% the Past Month, But Short Sells Are Attacking

Key Points

• Investors have been turning to small cap stocks over the past few weeks, with the Russell 2000 Index up 11% so far in July.
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Nearly one in five cars sold in 2023 was an electric vehicle (EV), according to the International Energy Agency’s Global EV Outlook 2024 report. And according to Statista, the industry is expected to grow at a compound annual rate of 9.82% between 2024 and 2028, reaching a projected market volume of $906.7 billion. 

By extension, this rate of growth has increased demand for lithium-ion batteries, something that has been a boon to the share prices of EV battery manufacturers like Enovix Corporation (NASDAQ: ENVX). The company has seen its stock rise 42% over the past month. However, looking further back, its stock performance has been less alluring, which has currently drawn the attention of short sellers.  

Over the past year, shares of ENVX are down nearly 19% and have fallen 52% from their all-time high on Nov. 19, 2021. 

EVs (and Their Batteries) Still Cost More

Compared to internal combustion vehicles and their batteries, EVs and their lithium-ion batteries still cost more in comparison despite sizable incentives currently available from the federal government. Because manufacturers have such tight margins in this industry, it has had an outsized effect on small- and mid-cap companies — a category Enovix falls into with its $2.95 billion market cap. 

Founded in 2007 and having gone public on July 15, 2021, shares of ENVX were a hit out of the gate. The stock debuted at $15.25 and reached its all-time high of $35.82 by November of the same year. But it has all been downhill since. 

For starters, the company has yet to post positive earnings in any quarter, most recently showing a negative EPS of -31 cents in the first quarter of 2024. Enovix reports second-quarter earnings on Aug. 7, 2024, when analysts forecast a loss of -19 cents. This is largely based on disappointing revenues, which were $7.64 million for the trailing 12 months, resulting in -$55.42 million in gross profit. The company’s operating expenses have ballooned from $67.56 million in December 2021 to $174.84 million in 2023, when free cash flow registered -$166.43 million.

As a result, insider selling and short interest have picked up in tandem. Insider selling outweighed insider buying 46 to 22 over the past 12 months. Meanwhile, 43.275 million of the company’s 168.144 million shares are currently shorted, according to Nasdaq.com.

With a price-to-earnings (P/E) ratio of -14.05 and an expected 2024 P/E ratio of -15.88, there is little doubt about why insiders are offloading their shares and shorts are increasing their positions.