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Should You Buy the Dip in Microvast Holdings?

Shares of battery manufacturer Microvast Holdings (MVST) have plummeted more than 70% since its public debut in July last year due to its poor financials and negative profit margins. However, the company expects its revenues to increase more than 35% in fiscal 2022. So, should you buy the dip in MVST now? Read more to find out...

Microvast Holdings, Inc. (MVST) is a battery systems manufacturer. The company went public via a reverse merger with Tuscan Holdings Corp. on July 26, 2021, raising $822 million in gross proceeds.

MVST CEO and President Yang Wu said, “As a public company, we are poised to leverage our increased financial resources to develop and deploy our battery solutions in partnership with a suite of market-leading customers across the world.”

However, shares of MVST plummeted 72.6% since its stock market debut due to the company’s rising operating expenses and recurring losses amid the global lithium shortage and supply chain disruptions. The stock slumped 51.8% year-to-date.

Here’s what could shape MVST’s performance in the near term:

Bleak Financials

MVST’s revenues increased 145.5% year-over-year to $36.67 million in the fiscal first quarter ended March 31, 2022. Gross profit came in at $13,000, compared to a $1.24 million loss reported in the prior-year quarter.

However, the company’s total operating expenses increased 276.9% from the same period last year to $43.41 million. Loss from operations widened 299.2% from the prior-year quarter to $43.26 million. Net loss worsened 168.6% year-over-year to $43.78 million, while loss per share amounted to $0.15.

Net operating cash outflow increased 1046% from the same period last year to $24.91 million. Adjusted EBITDA loss worsened 288.1% year-over-year to $23.15 million.

Negative Profit Margins

MVST’s trailing-12-month gross profit margin is negative 23.89%, while its EBITDA margin is negative 120.63%. In addition, the company’s trailing-12-month net profit margin stands at a negative 134.69%. Its trailing-12-month levered free cash flow margin is negative 92.89%.

Moreover, MVST’s trailing-12-month ROE, ROTC, and ROA are negative 206.64%, 27.15%, and 23.43%, respectively.

Poor Growth Prospects

MVST expects its revenues to rise by 35%-45% in fiscal 2022. However, the company’s revenue guidance might be adversely impacted due to the surging inflations, supply chain disruptions, and continued COVID-19-related restrictions in China.

The inflation rate grew 8.6% year-over-year in May, surpassing Dow Jones estimates and registering the fastest increase since December 1981. Moreover, China has announced fresh COVID-19 alerts in major cities in the wake of rising cases. Also, as the Ukraine-Russia tensions continue, aggravating the supply chain disruptions, MVST might miss its revenue growth targets in fiscal 2022.

Analysts expect MVST’s EPS to remain negative until at least 2023.

Unfavorable POWR Ratings

MVST has an overall rating of F, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

MVST has a grade of F for Quality and a D for Value. The company’s negative profit margins justify the Quality grade. In addition, the stock is currently trading 3.94 times its forward sales, 234.2% higher than the industry average of 1.18, in sync with the Value grade.

Of the 92 stocks in the Industrial – Equipment group, MVST is ranked #82.

Beyond what I’ve stated above, view MVST ratings for Growth, Sentiment, Stability, and Momentum here.

Bottom Line

Lithium prices have surged more than 900% since the beginning of 2021 due to the increased demand for battery production for electric vehicles. As the tight supply conditions are expected to persist, MVST’s profit margins are expected to remain under pressure in the near term. Thus, the stock is best avoided now.

How Does Microvast Holdings (MVST) Stack Up Against its Peers?

While MVST has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Preformed Line Products Company (PLPC), Standex International Corporation (SXI), and Belden Inc. (BDC), which have an A (Strong Buy) rating.

MVST shares were trading at $2.85 per share on Friday afternoon, up $0.09 (+3.26%). Year-to-date, MVST has declined -49.65%, versus a -22.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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