One of the hottest stocks in the market over the past several days has been wireless power developer Energous Corp (NASDAQ:WATT). Why? Because the company is closer than ever to pioneering truly wireless charging.
WATT is doing some really cool things. The company is developing a system which uses radio frequencies to transmit power to chargeable devices like smartphones and watches. The technology WATT is developing, called WattUp, is considered unprecedented because it is truly wireless. There aren’t any chords or charging pads — your device simply charges by being within the charge zone radius of the central charging device.
Pretty cool idea, right? Well, in late 2017, it became much more than an idea. On December 26, Energous announced that it had finally received FCC approval of its WattUp Mid Field transmitter.
That marked the first time ever that the FCC had approved power-at-a-distance wireless charging under Part 18 of the FCC’s rules (Part 18 usually covers industrial, scientific and medical (ISM) devices, so it has quite demanding health and safety guidelines). The approval paved the way for WATT to launch commercial WattUp devices in 2018, and officially makes the company a pioneer in what could be a huge space.
Consequently, Energous stock shot up. It went from $9 to over $30 in a matter of days.
But it’s not all roses when it comes to WATT. That is why Energous stock has tumbled back to $22 as investors have more deeply analyzed implications of the FCC approval.
As such, I say tread carefully when it comes to Energous stock. This is a risky stock.
The Issues With Energous Stock
The first glaring issue I see when it comes to Energous stock is the fact that insiders sold on the massive post-FCC approval rally. The CTO unloaded nearly 30,000 shares on Dec. 27. On Dec. 29, the CEO got rid of 75,000 shares. All those sales happened at prices considerably higher than the current stock price.
Maybe its obvious for management to sell Energous stock after its torrid run. But if you really believe in the WATT growth narrative, then a market cap below $1 billion for WATT is very small in the big picture.
Why sell at the beginning of what is supposed to be a massive rally as wireless charging goes mainstream? Maybe because WATT won’t be the only or even most notable player in this space.
And that brings me to the second issue with Energous stock. Just because WATT was the first company to receive FCC approval for wireless charging under Part 18 of the FCC’s rules doesn’t necessarily mean they will be the only player in this space. If wireless charging does go mainstream, then other players will enter the fold, and this will turn into a massively crowded and highly competitive market rather quickly.
Its also worth noting that the first company to apply new technology often gets ousted by a competitor who enters the market later, but comes with a bigger, better, faster product.
Before the iPhone, there was the Blackberry Ltd (NYSE:BB). Before Facebook Inc (NASDAQ:FB), there was MySpace. And before the Apple Watch, there was Fitbit Inc (NYSE:FIT). History is full of examples like this.
The third issue with Energous stock is that because of its exciting product pipeline and relatively small market cap, its an excitable stock that bounces big … and drops big. In 2016, rumors that WATT was working with Apple Inc. (NASDAQ:AAPL) on 2017 iPhones shot Energous stock from $6 to nearly $20.
But that rally faded in 2017. While Apple’s 2017 slate of iPhones do include wireless charging receivers, they all rely on conventional Powermat charging, not over-the-air charging.
Energous stock dropped all the way to $9. This rally could be faded in a similar fashion.
The fourth issue with Energous stock is credibility. The wireless charging devices which received FCC approval have a charging distance of just 3 feet, and aren’t powerful enough to charge a smartphone. Clearly, before WATT starts selling devices to the public, work needs to be done to improve the current model.
But much like Tesla Inc (NASDAQ:TSLA), WATT continually pushes off production target deadlines. Back in September, WATT said that products containing the mid-field transmitter would be here by early 2018 at the latest. Now, that deadline has been pushed to the back half of 2018. The arrival date for a contact-based transmitter has also been pushed back (from end of 2017 to first quarter 2018), as has the deadline for a transmitter with a 15-foot range (end of 2018 to 2019).
And according to sound research from TheStreet’s Eric Jhonsa, such deadline push backs have been happening since 2014.
The fifth (and final) issue with Energous stock is its financial situation. The company only has $20.2 million in cash on the balance sheet. With a lack of visibility as to when new products will come forth, the small and declining cash balance is a concern. Plus, this is a company that had revenues of just $1.5 million last year. The market cap is $500 million.
Bottom Line on WATT Stock
WATT is an exciting story, but a speculative one, too.
I say avoid Energous stock for now. Investors can afford to wait for more visibility.
As of this writing, Luke Lango was long FB and TSLA.