Energy Vault Is A Fit For Contrarian Value Investors
I recently bought a position in Energy Vault Holdings, Inc. (NYSE:NRGV). In doing so, I’ve chosen to go against the market: Shares are down 60%+ in the past year. Short interest comes close to a staggering 10%:

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Such performance tends to scare investors away. Much of the time, that’s justified, but in a few cases, going against the market is what true value investing is about. After all, value investing was conceived with the 1934 publication of Security Analysis. Just five years prior, its famed author Benjamin Graham had devastated his clients’ accounts in the stock market crash of 1929. That timing is critical in understanding what value investing was at the time: It was truly contrarian. Because at the time of the publication of Security Analysis, the stock market in general had come down so much that equities were basically unwanted. Some equities in particular were avoided by the market, including the “net nets” from which Graham would eventually go on to make vast amounts of money from.
I liken net nets to stocks like Energy Vault. According to research carried out by The Brandes Institute, issues like Energy Vault may be categorized as a “falling knife”. According to the research done by Brandes, such “falling knives” were found likely to outperform the S&P 500 over 1-3 year holding periods. “Falling knives” originating out of the US were found to more than double the return of the S&P 500 between 1980-2003.
To enter the study, the stock in question had to:
- Have seen a price drop of 60% or more in the past 12 months.
- Have a market cap of $100 million or more after the drop.
It was also found that small caps did better than large caps. In other words, small “falling knives” tend to outperform the S&P 500 by wider margins to their larger peers. Also, it was found that “falling knives” with low EV/R ratios did better than those with high EV/R ratios. The EV/R ratio expresses the relation between enterprise value and revenue and is ideal in valuing “falling knives” because conventional metrics like P/E and P/FCF don’t apply well to companies (temporarily) without earnings or free cash flow.
Energy Vault displays all the features described above: It’s a small cap that has lost more than 60% of its value in the past year. At the same time, Energy Vault’s EV/R ratio is a mere 0.13, which is among the lowest in the market currently.
Here on Seeking Alpha, I’ve done further research into “falling knives”. I’ve had a focus on “falling knives” with strong balance sheets, since I’ve noticed how they tend to do better than “falling knives” that are struggling financially.
As I will discuss in further detail later, Energy Vault is one of those “falling knives” with a strong balance sheet. Others that I have rated here on Seeking Alpha with similar features include:
Company | Rated on | Price @open | Price now | % Return |
Average | 37.98% | |||
Clearfield (CLFD) | Dec 26 2023 | 29.07 | 42.39 | 45.82 |
Inogen (INGN) | Jan 01 2024 | 5.47 | 9.18 | 67.83 |
Assertio Holdings (ASRT) | Jan 08 2024 | 1.03 | 1.44 | 39.81 |
New entry Offerpad (OPAD) |
Jul 21 2024 | 4.49 | 4.42 | (1.56) |
As seen, these “falling knives” haven’t been “held” for more than a few months – and therefore, results can’t necessarily yet be relied upon as the holding period in the Brandes study was 3 years.
The point is this, though: Even if a stock like Energy Vault has dropped off a lot, it shouldn’t be disregarded – especially not when it shows the characteristics that is does.
In the section below, I’ll examine what caused Energy Vault’s poor price performance and what steps management are taking going forward.
What Caused Energy Vault’s Decline – And What Management Is Doing About It
Energy Vault went public in February of 2022 after merging with a SPAC. It was hyped initially and saw great advances initially, only to eventually fall out of favor.
More recently, that downward pressure has only continued. On April 8, investment banking firm Chardan – who had otherwise had a Buy rating on Energy Vault – turned sour on the issue and slashed their rating to “Sell”. They cited the “inverted revenue trajectory” of Energy Vault. Ratings can easily influence share prices, and with smaller companies like Energy Vault, that’s even more true.
Adding to this, when Energy Vault last reported earnings on May 8, results missed on revenue (while EPS was in-line). That followed another miss earlier this year as Energy Vault missed on both top and bottom lines when they reported earnings on March 12. In my research on “falling knives”, I’ve come to notice that very often, consistently missing on guidance or consensus estimates is one of the greatest sources of such “falling knives”.
At the same time, it’s not uncommon for small growth companies to experience several bumps on their way as they unfold their potential – and management seems intent to work through Energy Vault’s challenges. On their most recent earnings call with investors, management spoke on the status of several initiatives they are taking:
First of all in that respect, I want to highlight the fact that Energy Vault has begun construction on a hydrogen hybrid energy storage system that is to provide storage to the city of Calistoga, California, on behalf of PG&E (PCG). Management informed investors that Energy Vault would own this system under an agreement with PG&E.
Management made the case that this project illustrated Energy Vault’s ability to partner with major players in the energy sector despite being a small growth company. Adding to this, management underlined how they are targeting – and quarter-over-quarter have been able to deliver – “profitable unit economics”, meaning Energy Vault has made a profit per unit after subtracting unit costs from unit revenue.
This focus ties in well with management’s decision to preserve a strong balance sheet:
I think this is definitely not least from an investor perspective, we have protected our balance sheet and liquidity as a company to allow us to control our destiny, to invest in growth, and eliminate any dilutive types of financing to shareholders. – Energy Vault CEO Robert Piconi
Management is right in pointing out the importance of a strong balance sheet. Energy Vault currently has about $135 million in cash and equivalents, and total current assets of about $207 million. That’s against no long-term debt, and total liabilities of just about $73 million. So with around $62 million in cash alone after everything has been paid off, and about $134 million in liquid total (current) assets with everything paid off, you’re paying very little for the business operations of Energy Vault (with a market cap of just $166 million). In my research on “falling knives”, I’ve so far found that those that do the best are “falling knives” that have financial flexibility through a strong balance sheet. These “falling knives” will have all the same troubles that characterize this field – such as the ones that I have gone through here, including missing on estimates and “fading out” after an initial hype stage – but those that have financial flexibility also tend to have what it takes to pull through.
Further to this, management noted its target of getting to cash flow positive even as a young growth company:
Very importantly, we […] reduced our quarterly cash operating expense run rate by 25% to 30% through actions taken in Q4 2023. This should enable a 2024 reduced quarterly cash OpEx of a range of $13 million to $15 million. We expect these actions to help us accelerate our shift to cash flow positive as we exit 2024 and for full year 2025 results… – Energy Vault CEO Robert Piconi
Getting to a stable state of cash flow positive would be a milestone to Energy Vault and something that could help protect its strong balance sheet and thereby the operations of the company.
Energy Vault is set to report earnings on August 6. If you’re tuning in to their earnings call, I would watch out for developments in relation to Energy Vault’s cash flows and balance sheet.
In terms of earnings and revenue, Seeking Alpha lists the following expectations:

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This is against last earnings reported as follows:

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As seen, Energy Vault is expected to do slightly worse than previous actual earnings (but slightly better than previous expectations), while revenue is expected to come up substantially. That’s in line with my expectations as new projects deliver more revenue but not necessarily earnings just yet.
Risks
It’s never going to feel pleasant buying a stock that’s down as much as Energy Vault. If you’re not into contrarian value opportunities, perhaps Energy Vault just isn’t your thing. Certainly, those investors who got into the stock when it IPO’ed believing in its growth story will have had their fingers burned by now.
When investing in “falling knives”, you don’t necessarily need an in-depth understanding of the business operations of the company. You do need, however, the discipline to keep your positions even if they continue to drop. After all, catching a “falling knife” doesn’t necessarily mean catching the bottom.
In other words, if you’re going to buy a stock like Energy Vault, you must accept the risk of short-term extreme volatility and near-term losses. The real risk is that after buying an issue such as this – having come down a lot already – it continues to come down because the bottom hasn’t been reached, and then you panic sell to avoid further losses. This is a surefire way to lose on stocks like Energy Vault.
In other words, it’s critical to see things through and let them work out when buying issues like Energy Vault. At the same time – since each “falling knife” may not work out – I suggest diversifying to “even out” some of the volatility and obtaining the results that an average of such issues has the potential to deliver.
Key Takeaways
Energy Vault is a small cap “falling knife” that displays some interesting quantitative properties: Its share price is down a lot in the past year, and its EV/R ratio is incredibly low. That makes it a candidate for a deep value type of quantitative value investing conceived through research from The Brandes Institute. Their research showed that contrary to popular belief, investing in “falling knives” not only beat the market, but did so substantially over a certain timeframe.
In the research I’ve done on Seeking Alpha, I’ve noticed how “falling knives” with strong balance sheets tend to do even better than the general “falling knives” portfolio – and much better than those with weak balance sheets. Energy Vault not only is a “falling knife” but also has a solid balance sheet. That’s one of the reasons I recently initiated a position.
While you could buy Energy Vault just for the quantitative factors described, it’s good to know what operational steps management has taken to improve the situation. Those steps include new projects and a strong focus on profitable unit economics and maintaining a strong balance sheet.
For the reasons stated above, I’m issuing a Buy rating for Energy Vault.
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