Microvast sign
Source: Microvast Facebook

Microvast (MVST) Offers a Good EV Opportunity at an Attractive Price

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Jul. 29 2021, Published 11:27 a.m. ET

Microvast went public on July 26 through a reverse merger with the SPAC Tuscan Holdings Corp. It started trading on Nasdaq under the ticker symbol "MVST." The company raised nearly $822 million through the combination, which valued it at approximately $3 billion. After the merger with THCB, should investors buy Microvast (MVST) stock?

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Microvast manufactures lithium-ion batteries for commercial and specialty vehicles. The batteries are designed for fast charging and long life cycles. The company was founded in 2006 in Houston.

Microvast’s customers and future opportunities

Microvast has strong customer relationships with industry leaders like Gaussin, FPT Industrial, Oshkosh Corporation, and a leading German luxury sports car company. Its R&D relationships are also impressive and it collaborated with the likes of BMW and other research institutions. Microvast's strong customer relationships also underpin its robust revenue visibility.

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microvast batteries
Source: Microvast Facebook

In 2021, Microvast was able to land two more important contracts. The first contract is the supply of standardized battery products to French bus manufacturer Safra. The second contract is supplying batteries for a new commercial vehicle platform of the French special vehicle manufacturer Gaussin. Microvast also wants to enter the truck market with the skateboard platform. In addition to supplying batteries, the company plans to enter other attractive segments like the energy storage, passenger vehicle, and consumer electronics markets.

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MVST’s valuation looks reasonable.

Microvast's enterprise value is estimated at nearly $2 billion. Based on this value and Microvast’s forecast total revenue, its valuation multiples for 2021 and 2022 are 8.7x and 4.3x, respectively. The high-growth stock’s 2025 EV-to-sales multiple of 0.85x looks much more attractive. Compared to MVST’s multiples, Romeo Power’s NTM EV-to-sales multiple is 14.4x. Therefore, MVST is much more attractively priced than its peers. It's also more established than some of its peers, including QuantumScape, which lowers the execution risk a new company faces.

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Is MVST a good long-term investment?

Microvast sees its total addressable market within EVs as $30 billion, driven by rising EV penetration. Since 30 percent–40 percent of the EV value lies in the battery, battery manufacturers are expected to play a pivotal role in the EV value chain. Unlike many other EV-related names that went public recently, MVST has existing sales and generated $100 million in revenues in 2020. Microvast expects its revenues to rise at a CAGR of 87 percent from 2020–2025 to reach $2.3 billion by 2025. While investors should take these projections with a pinch of salt, MVST has at least something backing up these claims.

Microvast already has $1.5 billion in contracted revenues until 2027. Its strong customer partnerships could see it get EBITDA positive soon. The company sees itself turning adjusted EBITDA positive in 2021 and foresees an adjusted EBITDA of $465 million in 2025. Getting EBITDA positive could be a big catalyst for MVST stock. Investors should watch the company’s next quarterly results, which are scheduled for Aug. 6. Overall, given the company’s strong growth prospects, robust customer relationships, revenue visibility, and attractive valuation, the stock looks like a good buy.

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