Should You Buy Solid Power on the Dip?

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Should You Buy Solid Power on the Dip?

Solid Power (SLDP) made its public debut in December 2021 as the only listed manufacturer of pure solid state electric vehicle batteries. However, the stock has since fallen more than 45% on its dismal financials amid an extended market correction. With EV demand increasing around the world, will SLDP be able to recover soon? Read below….

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Solid Power, Inc. (SLDP) is a pure solid state battery cell manufacturer. The company’s products are used in electric vehicles. It went public on December 9, 2021 through a reverse merger with blank check company Decarbonization Plus Acquisition Corporation III for gross proceeds of $542.90 million. As of December 9, 2021, SLDP is the only all-solid-state battery company trading on the public markets.

Doug Campbell, co-founder and CEO of SLDP, said, “Solid Power has spent the last decade developing solid state battery technology designed to deliver the increased performance demanded by both automakers and consumers. We are extremely pleased to have completed our business combination with DCRC and we look forward to our future as the only pure-play, solid-state company traded on the public markets.”

However, the company stated in a press release that its capital-poor business model through vehicle integration is expected in 2026. SLDP shares are down 45.8% since listing on the Nasdaq. Additionally, the stock is down 19.3% year-to-date and 8.3% in the last five days. SLDP’s gloomy financials and growth prospects, along with bearish broader market sentiment, caused the stock to lose momentum since its public debut.

The following could affect the performance of SLDP in the short term:

Gloomy finances

SLDP revenue increased 357.5% year-on-year to $2.20 million for the first quarter of the fiscal year ended March 31, 2022. However, the company’s total cost of ownership increased 183% over the same period last year to $13.50 million. As a result, operating loss increased 163.5% from the year-ago quarter to $11.31 million. Pretax loss worsened 44.1% year over year to $10.37 million, while net loss rose 44.9% year over year to $10.34 million. Loss per share was $0.06.

In addition, net cash and cash equivalents used in operations increased 294.4% over the same period last year to $14.37 million. Cash and cash equivalents balance as of March 31, 2022 was $450.41 million compared to balance of $513.45 million as of December 31, 2021.

Premium rating

SLDP’s 12-month P/E multiple of 112.63 is 777.4% above the industry average of 12.84. In addition, the stock is forward EV/Sales The multiple of 173.94 is well above the industry average of 1.11.

Its trailing 12-month price-to-book ratio of 2.36 is 7.2% above the industry average of 2.20. Additionally, SLDP is currently trading at 299.68 times its forward sales, 31,298.2% higher than the industry average of 0.95.

POWR ratings reflect a bleak outlook

SLDP has an overall rating of D, which means in our proprietary selling POWR ratings System. The POWR ratings are calculated considering 118 different factors, with each factor being optimally weighted.

SLDP has a D grade for value and quality. The exaggerated valuation of the stock compared to its competitors justifies the quality rating. In addition, the company’s trailing 12-month shares gross profit margin and ROTC are negative 3.64% and 7.4%, respectively, in sync with the Quality Score.

Of the 93 shares in the Industrial equipment Group ranks SLDP 75th.

Beyond what I’ve provided above, look at the SLDP ratings for Growth, Momentum, Sentiment, and Stability here.

bottom line

SLDP is an industry leading developer of solid state battery cells for electric vehicles. However, given global supply chain constraints and lithium supply shortages, SLDP’s operating costs have increased significantly. As the unfavorable macroeconomic conditions continue, the company is expected to face serious production and cost problems in the near future. As such, the stock is best avoided right now.

How does Solid Power (SLDP) compare to its competitors?

While SLDP has a D rating in our proprietary rating system, one might want to take a look at its industry peers Standex International Corporation (SXI), Preformed Line Products Company (SPS) and Belden Inc. (BDC) that have an A rating (strong buy).

SLDP shares closed at $6.90 on Friday, down -$0.15 (-2.13%). Year-to-date, the SLDP is down -21.05% versus a -17.67% gain in the benchmark S&P 500 over 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 takes a fundamental approach to stock analysis.

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