The Novonix Ltd (ASX: NVX) share price has been on quite a tear of late. This ASX battery materials company started 2023 at $1.47 a share. But Novonix is going for $1.80 a share as of today, a gain of more than 23% since the start of the year.
And yet, the Novonix share price still looks cheap at first glance. After all, this is an ASX share that was asking over $12 a share back in late 2021. Yep, in just over 12 months, Novonix has lost more than 85% of its value:
And yet, I'm not even tempted to buy Novonix shares. In fact, I wouldn't touch this battery tech company with a bargepole. Here are three reasons why.
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Novonix share price: 3 reasons I'm not buying
Lithium is still an emerging technology
Novonix has many exciting operations when it comes to lithium-ion batteries. There's a big chance lithium batteries will play a key role in the technological development of energy storage infrastructure over the coming decades. But it is also an industry still in relative infancy.
I'm not a battery and metals expert. So I'm not prepared to take a decades-long bet on which technology will emerge as the primary battery metal for the 21st century. For all I know, vanadium batteries could overtake lithium-based ones.
Thus, this is one reason I'm not investing in Novonix shares. There's nothing wrong with deciding a company is outside your wheelhouse.
Novonix isn't profitable
I don't own many shares that aren't profitable. Profitability is one of the most important metrics when analysing a company's financial stability.
And in this era of rising interest rates, profits have never been more important. Over FY2022, Novonix did manage to increase its revenues by 61% to $8.4 million. But the company still recorded a total loss for FY2022 of $71.4 million. The previous year, Novonix's losses came to $18 million.
That shows Novonix's losses are accelerating away from profitability and continuing to burn cash – a massive red flag for me.
Novonix is still expensive
Even after the massive share price losses we have seen with Novonix over the past year or two, I still think the shares look expensive.
Right now, Novoix has a market capitalisation of $878.62 million. But the company turned over $8.4 million in revenue in FY2022. That would give it a price-to-sales (P/S) ratio of 104.6 on the current share price. That is a relatively sky-high P/S ratio.
In FY2022, Novonix recorded an earnings per share (EPS) metric of -15.4 cents (reflecting its loss on the bottom line). Say, hypothetically, Novonix really turns things around in FY2023 and records a positive 1 cent per share EPS.
Today, that would give it a price-to-earnings (P/E) ratio of 180. That would be extremely expensive – and that's supposing Novonix goes from a negative 15.4 cents EPS to a positive 1 cent EPS.
So for me, whichever way you spin it, Novonix shares still look prohibitively expensive today.
