In 2021, I wrote over 30 bearish SA articles on OTC companies and only two bullish ones. I was bullish on Byrna Technologies (NASDAQ:BYRN) and KULR Technology Group (NASDAQ:KULR). Unfortunately, the stock prices of both haven’t fared well since their Nasdaq move and that could be due to sentiment, bad luck, or just the fact that I’m better at finding opportunities to sell than to buy.
Of the two companies, I still have an optimistic view of KULR Technology Group as I believe it has executed its growth strategy well and several recent partnerships reflect this. Let’s review.
Overview of recent developments
In case you haven’t read my first article on KULR Technology Group from June, the company specializes in the development and manufacture of carbon fiber thermal management products for batteries and electronics and its solutions have been used in the Mars 2020 Perseverance Rover as well as the International Space Station to protect the astronauts’ laptop and tablet batteries from battery thermal spread. The company’s idea is to take space-proven technologies and apply them in lithium-ion batteries. KULR’s core technology is a carbon fiber matrix which is lightweight and can conduct heat more efficiently than other materials.
The total addressable market is large and rapidly growing, with the thermal management and appliance market alone expected to exceed $16 billion by 2024. Its growth is driven by cloud computing, artificial intelligence, cryptocurrency mining and 5G deployment.
As far as financials go, KULR had quarterly revenue of just $0.4 million when I covered it in June. The company is growing rapidly and generated revenue of $0.6 million in the third quarter of 2021.
This growth is expected to continue as KULR recently secured a three-year, multimillion-dollar deployment order for its suite of spread-resistant passive solutions from Volta Energy Products. The initial deployment order is $1.6 million for immediate delivery, with larger volumes expected this year. KULR also received an initial order worth $0.5 million for its spread-resistant passive battery systems from Lockheed Martin (NYSE: LMT) in November.
In terms of other revenue streams, KULR recently acquired Centropy’s patented intellectual property rights that cover advanced carbon fiber-based heat sink technology for high-power computing (HPC) applications. This could allow KULR to increase its revenue in the crypto mining, cloud computing and AR/VR simulations markets. KULR also has a partnership with Heritage Battery Recycling to ensure the safe transportation of battery collection operations across North America. The latter has more than 100,000 customer sites as well as a fleet of more than 1,300 generating sets spread over more than 100 sites.
As you can see, KULR is strengthening its intellectual portfolio, orders are coming in, and the company’s technology is being validated through partnerships with well-known companies. Why then has the stock price fallen 17% at the time of writing since my first article was published? Well, my theory is that it’s due to a change in market sentiment. Inflation across the world is rising rapidly, prompting many central banks to consider raising interest rates. This will make borrowing more difficult for fast-growing startups like KULR and many investors are shifting their focus from growth stocks to value stocks.
Looking at KULR’s balance sheet, the company had $11 million in cash as of September. He also received $6.5 million from warrant exercises in October and November. Cash used in operating activities during the third quarter of 2021 was $1.3 million and is expected to increase as KULR expands its business. This means that the company may need to raise funds in 2022 or early 2023. If the stock price continues to fall, such a move could lead to significant stock dilution.
Overall, I think KURL has executed its growth well, but again G&A costs have increased significantly as its headcount has tripled in 2021. I continue to view the business as a speculative buy, but I recognize that this could be a dangerous time to invest in its stocks due to the difficult macroeconomic environment. Fortunately, there are put options available following the Nasdaq uplisting, which means there is now a way to insure against a sharp drop in the stock price in the near future.
Takeaway for investors
KULR Technology Group’s revenue more than quadrupled in the third quarter of 2021 and is expected to continue growing rapidly, with Volta Energy Products’ initial deployment order alone totaling $1.6 million.
KULR is also in the strongest financial position in its history, but its market valuation has declined over the past few months and I believe the reason for this is a market shift from growth stocks to value stocks. This seems justified given that inflation fears are driving central banks around the world to talk about raising interest rates. Since KURL is growing rapidly, I believe the company may need to raise funds in 2022 or early 2023.
Another major risk to the bullish deal is that I could be wrong about KURL’s potential, and no large orders coming in 2022.
I still think the company’s technology is compelling and I’m impressed with the recent partnerships and orders it’s managed to secure. Overall, I still view KULR as a speculative buy, but now that options are available, it might be a good idea to buy put options in case the market valuation continues to fall during 2022.