It's been a good start to the year for the Novonix Ltd (ASX: NVX) share price. Since the beginning of January, shares in the battery materials and technology company have appreciated by more than 6%. But that can't hide the fact that the Novnix share price has been in a pretty nasty downwards spiral for a bit over a year now.
Back in November 2021, Novonix climbed as high as $10.70 a share. But today, the company closed at $1.49 a share, meaning it's lost more than 86% of its value during that time.
This is obviously a fairly distressing situation for Novonix investors to be in. But it also begs the question: how low could the Novonix share price go?
Well, that's a pretty difficult question to answer. Especially in Novonix's case.
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How do you value the Novonix share price?
See, the share market normally prices companies based on two things: how much profit a company makes, and how much profit it is anticipated to make in the future.
That's why the price-to-earnings (P/E) ratio is such a commonly used metric in investing – it measures how a company's share price compares to its underlying earnings.
In Novonix's case, the company doesn't currently make profits, or earnings, as of yet.
In FY2022, Novonix did manage to report a 61% surge in revenue to $8.4 million. But the company still announced a total loss for the financial year of $71.4 million, up from an $18 million loss in FY2021. That translated into a negative earnings per share (EPS) of -15.4 cents.
More recently, Novonix delivered a quarterly cash flow report on 31 January, covering the three months to 31 December 2022. This revealed that Novonix burned through US$18 million in cash during the quarter while bringing in US$2.17 million in receipts.
So it's hard to give Novonix a valuation based on these kinds of metrics. How much would you pay for a company that loses US$15.83 million every three months?
A hard line to take would be to value Novonix solely on the US$99 million in cash it had remaining on its balance sheet at the end of the last quarter. Obviously, the market isn't being that harsh, given it currently gives Novonix a market capitalisation of $722.86 million.
This just proves how hard it is to accurately value a company with these kinds of financials. But if I had to guess just how low the Novonix share price can go, I wouldn't stop at the current share price.
