Tech Highflyers Pull Back Despite Diverging Financial Results

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Tuesday, July 21, 2020

Earnings season is in full swing for the corporate world.  It is one of four times per year where companies show their cards to investors so that the investment community can get a pulse on corporate health. Many times, stocks will run higher in anticipation of a company’s financials, only to pull back on the actual announcement.  This sell on news theme played out with a couple of tech stocks we analyzed today.

Despite very strong financial results out of Electrovaya Inc. (TSX:EFL) (OTCQB:EFLVF), the lithium ion battery manufacturer sold off in today’s trading after their announcement last night.

The Company announced revenue of $4.8 million (C$6.5 million), a four-fold increase compared to $1.2 million (C$1.6 million) for the fiscal third quarter ended June 30, 2019. Revenue for Q3 FY2020 also more than doubled compared to revenue of $1.9 million (C$2.6 million) for the fiscal second quarter ended March 31, 2020. According to the press release, the strong sequential revenue growth resulted from robust customer demand and the scaling up of production.

Electrovaya is experiencing strengthened customer demand for its products and has a significant order backlog. Accordingly, the Company currently anticipates further strong revenue generation in the coming months. Revenue for the fiscal year ending September 30, 2020 is expected to exceed $12 million (C$16 million), while revenue for the calendar year ending December 31, 2020 is expected to exceed $16 million (C$21 million), barring unforeseen circumstances.

Despite all the positives in the press release, the stock is trading down $0.0567 to $0.449 for a 11.21% loss on the day (U.S.-listed shares) as of last check. Investors should not be too bummed out about today’s selloff because despite today’s softness, the stock is still up 268.7% from it’s March lows. Not too shabby a return after a few months if you ask us.

A second high flying tech stock that came out with their own financials last night was C-COM Satellite Systems Inc. (TSX-Venture:CMI) (OTC:CYSNF). The global provider of mobile auto-deploying satellite antenna systems generated revenues of $1,061,665 and a net after tax loss of $466,930 or -1 cent per share. This compared with revenues of $2,566,595 and a net after tax profit of $267,342 or 1 cent per share for Q2, 2019 - representing a decrease of 59% and 275% respectively.

"In Q2 the Company continued to experience a slowdown in our markets that grew beyond Asia to the US and other areas impacted by the spread of the COVID-19 virus. Also, the OPEC oil production dispute that had dampened activity with our oil sector customers spilled into the early part of the quarter" said Dr. Leslie Klein, President & CEO of C-COM Satellite Systems Inc. "The COVID-19 virus will make 2020 a challenging year for all businesses. Our healthy balance sheet, extensive inventory, and new products position us well to mitigate challenges that this year will bring. However, I am encouraged that increased activity recently triggered the need for our engineering and testing teams to return to a full workweek."

This sell-off appears warranted. Not only is the stock up 98% from its March lows, but a significant softening of fundamental conditions is cause for concern. Shares of CMI (Canadian-listed shares) are currently down $0.17 or 5.38% at $2.99 at last check.

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