This Small-Cap Play Could Get a Surge of Energy
Here's how I'm keeping my trade current with this little stock that just shocked with some big news.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The market is undergoing some digestive action on Thursday, following the Greenland-driven drama on Wednesday. Small caps continue to lead with the Russell 2000 (IWM) up 1% which is why around 70% of stocks are in positive territory. There are over 420 12-month highs as well. To put it mildly small caps have very strong momentum.
The Magnificent Seven (MAGS) finally has a decent bounce as well and is up 1.2%. The rotation back into larger cap names is not impacting small caps so far, but I am watching for a corrective rotation to take hold. Even if we do see some reverse rotation I do not expect it to be a top for small caps.
Managing the Roku Trade
Yesterday I discussed a potential trade in Roku (ROKU) . So far it is doing what I hoped. If it continues higher from here I will take some partial profits and if it pulls back I will look to increase my position.
Roku is a larger capitalization name that has a lot of analyst coverage. It is also lower beta which means that its volatility is not extreme and it is very liquid and well known.
A Speculative Play on Energy Storage
Today I want to look at a stock and a trade at the opposite end of the spectrum. I first discussed NeoVolta (NEOV) in November. As was noted it is very small, thinly traded, and has no significant analyst coverage. The stock did well for a few weeks then rolled over, took out support and traded down to $3. This week it has significant news and jumped more than 60% to around $6 in four trading sessions.
NeoVolta designs and manufactures advanced energy storage systems (ESS). To date its focus has been on the residential solar market where it competes against the Tesla Energy division of Tesla (TSLA) . NeoVolta claims to have a superior product that uses Lithium Iron Phosphate (LiFePO4) chemistry, which is valued for being non-flammable and longer lasting (up to 6,000 cycles) compared to standard lithium ion batteries.
Massive Expansion Potential in Georgia
The company was progressing but it recently made a significant pivot, which has tremendous potential. It is moving into domestic, large scale manufacturing via a new joint venture in Pendergrass, Georgia. The Georgia facility is designed for an initial capacity of 2 GWh, with the potential to scale to 8 GWh.
This move shifts NeoVolta from a residential only player into the massive Utility Scale and Commercial and Industrial (C&I) sectors. Based on industry averages of around $200 per kWh, the initial 2 GWh capacity represents an illustrative revenue potential of $400 million annually. For context, the company recent quarterly revenue was just $6.7 million.
What is particularly interesting about this niche is that domestic manufacturers can benefit from U.S. federal incentives (like the Section 45X production tax credits) and it also helps customers meet "Buy American" requirements for federal tax credits.
High Risk and High Reward Execution
The potential here is huge but the company is still in the very early stages and must execute. There will be financing issues as well as the challenge of opening a major manufacturing facility. The market initial reaction to this news is optimistic but if NEOV management delivers it is likely to be a multiple bagger.
How do we approach this trade? First it is very high risk. If it was not high risk then the return would not be so potentially large. My approach is to establish a small core position. I will trade around that position and adjust my position size as the chart develops and news about progress occurs.
I already had a position in NEOV when this news hit. I added some more and then have taken some profits into the big move. I still have my core position and will now look for more entry points as this move is digested. My view is that this could be a huge winner months from now but I have no interest in just buying and holding. I am going to aggressively trade it to control my risk exposure and hopefully can time a ramp up in size to capture large upside moves along the way.
That is how I approach a high risk high return, thinly traded, and unknown small cap.
At the time of publication, DePorre was long ROKU and NEOV
