Dragonfly Energy (NASDAQ: DFLI) may be a smallcap company, but make no mistake, they are performing every bit like a large-cap, establishing itself as a vital contributor to ensuring the United States stays on a pathway to battery power independence. And at just $1.93 a share on Tuesday, that reality exposes quite a compelling value investment proposition. (* closing share price on 7/18/23, Yahoo! Finance)
In fact, its industry-changing deep-cycle lithium power batteries alone can justify a higher valuation. But appraising DFLI that way leaves considerable value unaccounted for, especially the inherent related to its 55 patents filed and pending that protect its leadership position in a space earning considerable attention. Here's the better news. Those patents are value drivers that can be exploited, not exclusively through infringement, but on friendly terms where partnerships and licensing allow DFLI to monetize its vast arsenal of battery technology.
That ability, or call it diversification, is expected to facilitate DFLI to grow at an unprecedented pace. With its IP protecting the most advanced, safest, and innovative battery technologies, it's already causing a shift in its growth pace- from hyper to warp speed.
Vital To An Energy Supply Chain
That's to be expected considering the pace at which demand for clean, renewable energy and the power to fuel a booming electric vehicles market are growing. For DFLI, that demand is doing more than exposing near-term opportunities; it's also showing that it's more critical than ever for companies to have a competitive and protected advantage in a sector where innovation, performance, efficiency, and sustainability matter. The excellent news for Dragonfly investors is that they check all those boxes.
Better still, they are positioned to answer what's becoming a desperate call to mitigate growing dependence on batteries produced by foreign sources. That secret is out of the bag, with supply chain disruptions in 2022 exposing how significant the U.S.'s reliance on imported batteries has become. Not only did COVID-related disruption affect supply and pricing, but it also provided an alarming wake-up call for the U.S. and its allies to proactively protect against future and similar disruptions. Simply accessing the market won't be enough. Those who genuinely want energy independence must align with the companies that can provide it. DFLI checks that box as well.
As a leading manufacturer of deep-cycle lithium-ion batteries, DFLI is vital to helping ensure that developing a robust battery supply chain in the U.S. is more than an ambitious mission statement but a program in progress. This is where being better matters, a claim that DFLI can confidently make. And that statement can go beyond saying its batteries are safer, more efficient, and more powerful than current lead-acid options; they can boast its batteries' design and assembly is completed in the United States. Most of its competitors can't say the same.
Dragonfly Battery Technology Serves Diversified Demand
There's more to appreciate than being homegrown. Dragonfly's contributions are adding to research and development initiatives that highlight its non-toxic deep-cycle Lithium Iron Phosphate (LiFePO4) battery technology that is replacing lead-acid batteries across a broad range of use applications, including RVs, marine vessels, residential off-grid and backup storage, and industrial applications. Leading the market penetration, in part, is its innovative deep-cycle battery, the 270Ah 12V GC3, sold under the Battle Born Batteries brand. Its differences are so good they earned patents for technology and design.
In fact, Battle Born battery differences are advantages that serve the need to replace the millions of lead acid batteries that have flooded the markets over the previous decades. Unlike competing lead-acid alternatives, Dragonfly and its branded Battle Born batteries are environmentally safer, provide 2-3 times more power, last over ten times longer, are one-fifth the weight, charge faster, and require no maintenance. That's game-changing, and as important from a company and investor perspective, they are selling.
That's not surprising, knowing that changing to a Battle Born battery isn't difficult due to DFLI's battery pack design allowing for seamless installation inherent to its flexible form factor. The battery is so innovative that it has been instrumental in shifting the RV industry standard to lithium. It spurred that change by offering increased energy density in a unique form factor, which has helped the GC3 gain popularity with installers serving overland, off-grid properties, and auto trailers. It's an excellent choice. Here's why.
Dragonfly's BBGC3 utilizes the stable LiFePO4 chemical composition in cylindrical cells and the same advanced built-in battery management system technology found in other Dragonfly Energy products. In addition to better design, performance is impressive, providing 270Ah of power, making it ideal for a wide range of applications. Another advantage compared to alternatives is that the BBGC3 can be discharged to a 100% depth and charge up to five times faster than lead-acid batteries, highlighting its superior energy efficiency. Moreover, the battery's lifespan is designed to last between 10 and 15 years and is backed by an industry-leading 10-year warranty.
Battle Born contributes just a part to the DFLI value proposition.
DFLI Markets Best In Class, Lead-Acid-Free Power Sources
Marketing through its Dragonfly brand, DFLI is further accelerating its pace of making its deep-cycle lithium-ion batteries mainstream to EV and off-grid users. The Dragonfly Energy brand serves its Original Equipment Manufacturing (OEM) customers and partners. One is with the industry-leading recreational vehicle manufacturer THOR, a relationship that led to a strategic investment of $15 million into developing additional Dragonfly technologies. That's not all driving revenues higher.
Additional income is generated from being designers and resellers of accessories, effectively making DFLI a total system integrator for its customers. That scope was enhanced after acquiring Wakespeed Offshore in 2022, which facilitated Dragonfly to better integrate its storage systems with vehicle engines and alternators. Combined with battery pack monitoring and communication innovations, it sets the 2H/2023 stage for appreciable growth inherent to DFLI's focus on capitalizing on and maximizing revenue-generating opportunities that larger stationary storage applications present. It's made DFLI a more prominent provider faster than many may have expected.
Today, Dragonfly is recognized as an expert in lithium-ion batteries and entire lithium battery storage systems. That's earned value from having a robust patent portfolio continually strengthened by innovation, including Dragonfly's dry powder coating cell manufacturing technology and non-flammable battery technology.
Targeting Multiple High-Dollar Market Opportunities
While all the above are sure value drivers, DFLI's sum of its parts provides them a means to do something else: exploit its leadership position in underserved EV, recreational vehicle, and off-grid markets. That focus puts lucrative markets into play, including from the growing pack of EV sector players like Tesla (NASDAQ: TSLA), Ford (NYSE: F), and General Motors (NYSE: GM), who are looking for best-in-class power alternatives to mitigate continued squeezing of production margins.
Dragonfly can certainly answer their call, leveraging over a decade's expertise in developing intellectual property focused on lithium-ion cell manufacturing. As importantly, their work is well-recognized, resulting from its energy source innovations revolutionizing an industry by making lithium-ion batteries more accessible to niche markets. That attention is expected to get more pronounced as its direct-to-consumer business segment earns more sales traction, a trend in progress.
Remember, also, that momentum is at DFLI's back after a solid 2022 showed Dragonfly's OEM segment growing by more than 300% YoY, representing approximately 39% of total sales, compared to roughly 11% in 2021. Growth continued through Q1 2023, with DFLI posting net revenues of $18.8 million, higher by 2.7% over the same period last year. For its bottom line, DFLI scored net income of $4.9 million compared to a net loss in Q1 2022. Don't discount that percentage growth. Rising revenues and a strengthening bottom line in any measure are impressive in the current economic environment.
A Compelling Value Proposition Exposed
In that respect, DFLI presents a compelling thesis for investment at current levels. Not only for its near-term prospects but long term, too. In other words, volatility in DFLI shares may be less company-specific and more market dynamics. More specifically, weakness can be viewed as an opportunity rather than a deterrent.
That supposition makes sense, knowing that DFLI is hitting on all cylinders to create higher and sustained shareholder value. Thus, the best way to evaluate Dragonfly Energy is by acknowledging that low prices in growing companies with accelerating revenue growth will always be in fashion. In fact, Dragonfly Energy's over 30% gain since the start of July proves, as is often the case, that windows of opportunity don't stay open for long, making seizing on this valuation disconnect a wise and timely consideration.
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