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Energy Focus: A Compelling Contrarian Investment Opportunity

May 08, 2020 12:22 PM ETEnergy Focus, Inc. (EFOI)AYI, LEDS, LYTS10 Comments
Kabir Mathur profile picture
Kabir Mathur


  • Energy Focus has seen increasing demand from the military with multiple large contract wins recently and remains operational during the pandemic.
  • EFOI's share price trades at a meaningful discount to its peers, providing a large margin of safety.
  • Liquidity and leverage are in much better shape than what stock screeners would indicate, giving EFOI the balance sheet strength to support its turnaround.
  • A new suite of product offerings will help improve sales and margins going forward.

Energy Focus Inc. (NASDAQ:EFOI) is a deeply underappreciated and undervalued nano-cap stock with the potential for large growth in the coming years. The Company designs, manufactures, and sells light-emitting diode (LED) products that are used by military and commercial customers, the latter of which primarily consists of U.S.-based hospitals and schools (K-12 and universities). Mr. Market's pessimism about this stock has caused him to ignore important value enhancing dynamics occurring at the business, including 1) a shareholder aligned leadership team with a turnaround strategy that's already showing signs of success, 2) over $5M in military contract wins disclosed since last quarter's end, 3) a near-term high-margin product release, and 4) the fact that the business has been deemed an "essential critical infrastructure workforce" and continues normal business operations during the coronavirus pandemic.

Business Overview

Founded in 1985, Energy Focus, Inc. produces and sells LED products, which are more sustainable and energy-efficient than other traditional lighting products such as fluorescent, incandescent and HID lamps. Given their energy efficiency, LED products are able to reduce long-term energy and maintenance costs relative to traditional lighting. EFOI sells its products primarily to customers in commercial and military maritime markets (MMM) where the economic benefits and technical specifications of their product offerings are most compelling. The Company's commercial customers tend to focus on quality, efficacy, total cost of ownership and return on investment, while MMM customers require more rigorous military specifications pertaining to durability and dependability. The Company has been a US defense contractor since 2007, demonstrating the reliability and quality of its products and its large potential for sales growth as it begins its relaunch efforts to grow sales back to historical levels. Energy Focus reports that its commercial products have extremely low failure rates of less than 0.1 percent, compared to an industry average of 3 to 5 percent.

This article was written by

Kabir Mathur profile picture
As principal of Tor View Capital, LLC I focus my research on deep value and special situation investment opportunities. My professional background is in business valuation of private companies, and I have carried that experience over to my public stock market investing endeavors. It seems to me that the biggest edge for the smaller investor is in exploring under-followed areas of the market, so that is where I tend to focus my efforts. My hope is that by engaging with fellow investors on Seeking Alpha I can contribute to the discussion and learn from the community in the process.

Analyst’s Disclosure: I am/we are long EFOI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

I'm long $EFOI at these levels
Price/Book = 3.19
The energy efficient LED lighting market will grow tandem with the renewable energy market. This can almost be played as a value play. Market cap is only $14m... 2020 revenue was $16.83m
Long efoi
Truth_AndMovement profile picture
Your last two picks have been double, triple baggers...you just gained a new follower
Patrick Irish profile picture
What a beast of a move. Still long?
Kabir Mathur profile picture
I recently sold this position. There may be further upside but at this time the valuation makes for a less favorable risk/reward profile in my opinion.
They came down significant. Is this investment thesis still solid?

The company isn't covered by many analysts what makes it difficult to assess.
Josh Klein profile picture
Nice call @Kabir Mathur !
Kabir Mathur profile picture
Thank you! @Josh Klein
astute pathways profile picture
Nasdaq delisting appears certain...A reverse split might help
Nice article. Thanks.

Are products manufactured in the US or offshore. I assume military products are made in the USA. What about the other products?
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