The Motley Fool

Why did the Ilika share price crash last week?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businessman looking at a red arrow crashing through the floor
Image source: Getty Images.

The Ilika (LSE:IKA) share price has been moving like a rollercoaster over the past couple of months. Despite seeing a massive 440% rise in 2020, the stock has since acted with immense volatility. Just last week, the company published a seemingly promising trading update, only for the share price to collapse three days later. What happened? And is this a buying opportunity for my portfolio?

The business

Ilika is a pioneering technology company looking to find a suitable replacement for lithium-ion batteries with its own solid-state batteries. The former type is currently in high demand due to the rising popularity of electric vehicles. However, such batteries suffer from some significant drawbacks, like the difficulty of recycling and having a relatively short lifespan.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The alternative that Ilika has designed overcomes these issues and provides a higher power density ratio. In other words, they can drive further and charge faster. That’s why the management team believes the technology will become the new standard by the end of the decade.

That certainly sounds exciting. And the technology is already being used on a smaller scale within medical devices and industrial wireless sensors. Ilika recently published a trading update that revealed good progress in its 70x expansion plan of small battery production. It’s also starting a new collaboration with Fiat to scale up its larger electric vehicle battery manufacturing capabilities. To me, this looks like encouraging progress, so why did the Ilika share price fall by 25% last Friday morning and why has it stayed low this week?

The falling share price

As exciting as this technology may be, the firm has yet to transform itself into a profitable organisation. That undoubtedly exposes investors to additional risks. Why? Because the management team has to find new ways to raise capital. And for a small, unprofitable business, debt financing isn’t a particularly viable option.

As a result, the company turned to shareholders to get its much-needed capital. Last Friday, Ilika announced a new share offer for investors to raise a total of £24.7m. But the vast majority of the newly issued shares were priced below the trading price at 140p. That’s roughly a 30% discount. I’m not surprised to see the Ilika share price fall by a similar amount.

The Ilika share price has its risks

The bottom line

Is the recent drop a buying opportunity? I’m not so sure. While the share price dropped by almost a third, the valuation remains quite rich. It currently has a market capitalisation of around £220m versus a revenue stream of only £2.3m. To me, it looks like the stock is being significantly elevated by expectations rather than fundamentals.

Forecasts suggest revenue will increase substantially in 2023/24 as its large battery production ramps up. But there’s a lot that can go wrong in the meantime. After all, Ilika is not the only business exploring solid-state battery technology. And there’s some evidence to suggest that with nano-technology, lithium-ion batteries could be superior in the future, making this venture ultimately obsolete.

Personally, I think it’s too soon to invest in this business. And so, for now, it’s staying on my watchlist.

Instead, I much rather invest in this...

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.