Will the Ilika share price crash beneath £1?

The Ilika share price has been getting closer to making it a penny stock. Our writer looks at why and explains his next move.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British Pennies on a Pound Note

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Battery maker Ilika (LSE: IKA) is hoping to power more and more objects as its sales grow. But one thing that seems to be lacking in power is the Ilika share price. It has tumbled 48% in the past year.

Although the price remains above the £1 level for now, Ilika has been moving closer to penny stock territory. Will it end up becoming a penny share?

Business momentum

At first glance, the share price slide may seem odd when set against the company’s business momentum. Ilika has set up a factory to produce its Stereax line of batteries. It is in the process of making sure the factory works as hoped. It should start commercial sales fairly soon.

On top of that, the company is also making progress with its Goliath line of products. It has continued to improve the design and is now planning how to manufacture the batteries at scale.

However, this progress with research and manufacturing has not yet translated to improved finances. In fact, revenue in the company’s first half fell to just a couple of hundred thousand pounds. But the loss before interest, tax, depreciation and amortisation increased to £2.7m from £1m in the prior year period. For now, Ilika has enough liquidity to tide it over even when making losses. Its last reported cash balance, at the end of October, was £27.7m.

The Ilika share price

Still, that cash balance has come at a cost to shareholders. The company raised around £25m last summer to prop up its finances, partly by diluting existing shareholders. If it keeps making losses, there is a risk it could dilute shareholders again in future.

I think the reason the Ilika share price has been falling is a revaluation of the firm’s prospects. Its technology is promising and progress towards commercial production is a positive step. But it has also meant that investors are no longer thinking of Ilika in purely theoretical terms when it comes to business potential. Instead they are starting to think about how the company can build its sales capability, how much more funding may be needed by the company to fund its growth plans and also whether increasing competition could put profit margins under pressure in future.

So while Ilika continues to have attractive technology and is moving closer to selling its products in large amounts, its financial model remains a matter of concern. The market capitalisation of £185m still looks high to me for a company at its stage of development.

Penny share

Based on that, I would not be surprised if the Ilika share price keeps falling. I could see it fall beneath £1 in the coming year, especially if there is bad news, like an unexpected delay to production or poor sales figures.

If Ilika becomes a penny share, it would simply put the price back where it used to be. Until 2020, it had traded as a penny share for most of the time it had been listed on the stock market. It still would not tempt me in, though. I do like its technology and reckon it has promise. But the company simply does not have the sort of proven business model I feel most comfortable with when buying new shares for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »