KULR Technology Stock: Revenue Growing Fast, Still Bullish (NASDAQ:KULR)

Introduction

In 2021, I wrote over 30 bearish articles on SA about OTC companies and only two bullish ones. I was bullish on Byrna Technologies (NASDAQ:BYRN) and KULR Technology Group (NASDAQ:KULR). Unfortunately, the share prices of both haven’t been performing well since uplisting to the Nasdaq and this could be due to sentiment, bad luck, or just that I’m better at finding sell opportunities than buy ones.

Out of the two companies, I still hold a bullish view of KULR Technology Group as I think it has been executing well on its growth strategy and several recent partnerships are a testament to that. Let’s review.

Overview of the recent developments

In case you haven’t read my first article on KULR Technology Group from June, the company specializes in the development and manufacturing of carbon fiber thermal management products for batteries and electronics and its solutions were used in the Mars 2020 Perseverance Rover as well as the International Space Station to keep the astronauts’ laptop, and tablet batteries safe from battery thermal runaway propagation. The idea of the company is to take space-proven technologies and apply them in lithium-ion batteries. The core technology of KULR is a carbon fiber matrix that is lightweight and can conduct heat more efficiently than other materials.

The total addressable market is large and growing rapidly, with the thermal management and device market alone expected to surpass $16 billion by 2024. Its growth is being driven by cloud computing, artificial intelligence, cryptocurrency mining, and 5G deployment.

Looking at the financials, KULR had quarterly revenues of only $0.4 million when I covered it in June. The company is growing rapidly, and it generated revenues of $0.6 million in Q3 2021.

This growth should continue as the KULR recently secured a three-year multi-million dollar deployment order for its passive propagation resistant solution suite from Volta Energy Products. The initial deployment order totals $1.6 million for immediate delivery, and higher volume shipments are expected this year. KULR also received an initial order worth $0.5 million for its passive propagation resistant battery systems from Lockheed Martin (NYSE:LMT) in November.

Looking at other revenues streams, KULR recently acquired patented intellectual property rights from Centropy that cover advanced carbon fiber-based heatsink technology for high power computing (HPC) applications. This could allow KULR to grow its revenues in the crypto mining, cloud computing, and AR/VR simulations markets. KULR also has a partnership with Heritage Battery Recycling for the provision of safe transportation of battery collection operations across North America. The latter has more than 100,000 customer locations as well a fleet of over 1,300 power units across more than 100 facility locations.

As you can see, KULR is strengthening its intellectual portfolio, orders are coming in, and the company’s technology is getting validation through partnerships with well-known companies. Why has then the share price come down by 17% as of the time of writing since my first article was published? Well, my theory is that this is due to a shift in market sentiment. Inflation across the world is rising rapidly, which is pushing many central banks to think about increasing interest rates. This will make borrowing harder for rapidly growing startups like KULR and many investors are shifting their focus from growth stocks to value stocks.

Looking at the balance sheet of KULR, the company had $11 million in cash as of September. It also received $6.5 million from warrant exercises in October and November. Cash used in operating activities during Q3 2021 was $1.3 million and is likely to increase as KULR expands its business. This means that the company could need to raise funds in 2022 or in the beginning of 2023. If the share price continues to fall, such a move could result in significant stock dilution.

Overall, I think KURL has been executing well on its growth, but then again SG&A expenses have grown significantly as its headcount tripled in 2021. I continue to view the company as a speculative buy, but I acknowledge that this could be a dangerous time to invest in its shares due to the challenging macro environment. Fortunately, there are put options available following the uplisting to Nasdaq, which means there is now a way to insure against a large drop in the share price in the near future.

Investor takeaway

The revenues of KULR Technology Group grew by more than four times in Q3 2021 and are set to continue expanding rapidly as the initial deployment order from Volta Energy Products alone totals $1.6 million.

KULR is also in the strongest financial position in its history, but its market valuation has been declining over the past few months and I think the reason for this is a market shift from growth stocks to value stocks. This seems justified considering inflation fears are pushing central banks across the world to talk about increasing interest rates. Considering KURL is growing fast, I think the company could need to raise funds in 2022 or in the beginning of 2023.

Another major risk for the bull case is that I could be wrong about KURL’s potential, and no large orders come in during 2022.

I still think that the company’s technology is compelling, and I’m impressed by the recent partnerships and orders that it has managed to secure. Overall, I continue to view KULR as a speculative buy, but now that options are available it could be a good idea to buy some put options in case the market valuation continues to decline over the course of 2022.