Tritium Is Another SPAC Story with Drama, Excitement and Poor Fundamentals
Tritium DCFC Limited (NASDAQ:DCFC) is a designer, manufacturer and supplier of current chargers for electric vehicles (EVs) across the globe. The company was incorporated in 2001 and is based in Australia, but it made headlines when it went public by combining with Decarbonization Plus Acquisition Corporation II. In other words, DCFC stock went public via a special purpose acquisition company (SPAC).
There are at least three main risks now for DCFC stock that make unappealing. But before analyzing these factors, here’s a reminder to all investors interested in SPACs: Beware of elevated volatility that is not justified by fundamentals.
A very important announcement sent DCFC stock to a strong rally that ended with a steep selloff. What should you know about its story?
Tritium DCFC Announced a New Factory
On Feb. 7, the stock price at the close of the trading session was $6.84. On the next day, it rose to $9.54, then on Feb. 9 it reached $15.70. Then, the selloff drove the stock price to $7.36 as of Feb. 28. All prices are as of the close of the market.
The reason for this short-term surge in the DCFC stock price was the announcement of a new manufacturing facility in Tennessee.
According to Tritium, “The location is expected to house up to six production lines for Tritium’s DC fast chargers, including the Company’s award-winning RTM and all-new PKM150 models.” It is expected to create more than 500 jobs locally within the next five years.
It was also stated that this new facility is expected to “produce more than 10,000 DC fast charger units per year, with the potential to produce approximately 30,000 units per year at peak capacity.”
However, what is truly amazing for such a small and new publicly traded company is an event during which the CEO of Tritium, Jane Hunter, joined President Joe Biden at the White House. Biden talked about the company’s new factory while discussing his goal to incorporate EVs in the U.S. government’s fleet of cars.
This is the definition of marketing and getting massive, free publicity. It’s possible some retail investors who never knew anything about Tritium rushed in to buy a few shares.
Now, they may be left wondering what went wrong after the steep selloff. The three main risks to focus on now are related to fundamentals.
Negative Shareholder Equity is a Red Flag
Tritium DCFC ends its fiscal year in June. For fiscal 2020 and fiscal 2021, it reported a free cash flow loss of $42 million and $35 million respectively.
Burning cash to make a large capital expenditure for growth is risky. For fiscal 2021, the total shareholder’s equity was a loss of $64 million. This is mostly due to the negative retained earnings history.
The profitability of Tritium DCFC will make you put your sneakers on and run as fast as possible away from the thought of buying its shares. The firm also has a long-term debt of $44 million on its balance sheet as of September 2021.
On a trailing 12-month (TTM) basis, the gross margin is a loss of 3.4%. The operating margin is negative 75.3% and the net margin is a loss of 112.35%. In fiscal 2020, the net margin was negative 73.33%. So, here we have a company with widening losses, cash burn, debt and negative shareholder equity.
The Bottom Line on DCFC Stock
Two of those reasons are already enough to make investors stay away. Four reasons are far too worrisome. Avoid DCFC stock until it starts making money.
The firm will face stiff competition, so there is potential for revenue growth. However, it is at an increased risk and fundamentals are too poor right now. This is not an ideal scenario to support the stock price.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
