The Novonix Ltd (ASX: NVX) share price has experienced a destructive share price crash of 80% during 2022. This dramatic drop in value has left many investors wondering if the crash is justified, and what could have caused such a steep decline.
One possibility is that Novonix's financial performance has not lived up to expectations. Typically, a difference between market expectations and reality can only be sustained for so long before investors react.
The Novonix share price entered the year with its chest puffed out — parading a $10.52 price tag. Exactly 353 days later, the scenery isn't as picturesque for the battery technology company. Today, shares in the same company are swapping hands at $1.73, as displayed above.
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Is there a good reason for the punishment?
It's worth taking a closer look at Novonix's financial performance to see if this is a possible reason for the share price crash.
According to the company's financial statements, Novonix has seen accelerating revenue growth in recent years. From FY20 to FY21, Novonix increased its revenue by 28% to $5.23 million. Amping up the growth, revenue grew by 61% in FY22.
However, the company's bottom line has significantly deteriorated in the current year. In an environment where capital is becoming more expensive, it wouldn't be a surprise if investors became less bullish on Novonix as its losses widened. Losses in FY22 totalled $71.44 million, taking a gigantic leap deeper from $18.08 million in the prior year.
Novonix finished the September ending quarter with $181.77 million of cash on hand. Although, with a worsening cash burn, shareholders might be concerned about future dilution if the company fails to navigate to positive cash flow with its current capital.
It's also worth considering whether the overall market conditions played a role in Novonix's share price crash. Novonix fits somewhere in between a tech share and a battery material share. While battery material producers — such as ASX lithium shares — have generally performed well this year, tech shares have had a miserable run.
Novonix share price walloping warranted?
So, is Novonix's 80% share price crash justified? It's difficult to say for certain without the benefit of hindsight. Even now, the company could appear richly valued given its trading at 102 times revenue for the trailing 12 months.
On the flip side, many non-financial achievements were obtained during the year. These include:
- Securing a graphite supply agreement with KORE Power
- Entering negotiations with the US Department of Energy for US$150 million of funding
- Constructed and opened multiple manufacturing and testing facilities
The above developments are encouraging for long-term investors. However, the market has shown that it wants profits to support a rich valuation. The Novonix share price could risk further declines if the company continues to churn through its capital.
