Graphite grandeur: Will I be buying Novonix shares at 70 cents?

Novonix is up big over the past week.

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It's been a cracking time to own ASX graphite shares like Novonix Ltd (ASX: NVX) over the past few days. This Monday has been a rough one for most ASX shares. The All Ordinaries Index (ASX: XAO) has started the week off with a nasty 0.61% slide so far today. But it's a different story when it comes to Novonix and its graphite peers.

The Novonix share price closed at 66 cents last Friday. But today, Novonix opened at 72 cents before climbing up to a high of 74 cents soon after open. At present, the company is sitting at 70 cents a share, up a robust 6.11% so far this Monday.

It's not just Novonix though. The company's fellow graphite producer Syrah Resources Ltd (ASX: SYR) is currently enjoying a bounce of 8.5% up to 58 cents a share.

In fact, it looks as though Novonix shareholders can thank Syrah Resources for this latest dramatic share price jump.

We haven't had any fresh news out of Novonix itself for a while. However, last Tuesday saw Syrah release a very well-received quarterly earnings update. As we covered at the time, this update had Syrah announce higher graphite sales and improved demand from the Chinese market. Syrah sold 23 kilotonnes of natural graphite over the period, albeit at an average sales price of US$528 per tonne, which represents a drop over the previous quarter.

Nevertheless, investors seemed to love what Syrah had to say last week. At the time, the Syrah Resources share price dipped but is now up almost 30% from where it was before this announcement came out on Tuesday.

It looks as though Novonix shares are riding these coattails, with the Novonix share price up more than 12% over the same period. That's again despite no news out of Novonix.

So are Novonix shares a buy at 70 cents?

Despite these recent wins for Novonix shares, I'm still not at all interested in buying this company. Graphite may have a strong and healthy future in the 21st century as an important ingredient of batteries and other exciting new technologies. But that doesn't mean it will.

I don't confess to being an expert in battery technology or electrical chemistry.

But here's what I do know. In August, Novonix reported that it ran a loss before tax of $28.1 million over the half-year ending 30 June 2023. That was only down slightly from the loss of $31.05 million Novonix ran over the same period in 2022.

Now sure, Novonix did manage to grow its revenues by an impressive 23.3% between the 2022 half and the 2023 half. But a company that loses nearly $30 million over six months is just not welcome in my portfolio. Novonix's profitability is dependent on external factors – namely the price it can sell graphite and other minerals for. I tend to shy away from even the best companies of this nature for this reason, let alone loss-making ones.

Novonix simply doesn't have the financial strength or stability that can overcome the risks of owning a company that is dependent on external pricing in my view. As such, I won't be buying Novonix shares at 70 cents or at any other price for that matter. There are just too many better places you can put your money in today.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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