Albemarle (NYSE:ALB) is a purveyor of several industrial materials, but when it comes to what moves ALB stock higher (or lower), revolves around the company’s lithium business.
Since 2021, lithium prices have skyrocketed, as demand for the white metal (essential in the production of electric vehicle, or EV, batteries) has soared to a point where it outstrips limited global supply.
Yet following the big run up in lithium prices (which in turn led to a big run up in Albemarle’s profitability and stock price), the market at present is overly sensitive to any hint of softening demand.
That’s why this stock has made a noticeable move lower, in the days following Albemarle’s most recent earnings release. Investors are using the company’s latest numbers as an excuse to cash out. However, you may want to instead view this weakness as an opportunity to buy.
| ALB | Albemarle | $275.50 |
ALB Stock and Its Latest Results
On Nov. 2, Albemarle reported Q3 results for the quarter ending Sept. 30. With the massive increase in lithium prices over the past twelve months, ALB reported large jumps in its net revenue, EBITDA and earnings per share (or EPS).
Net revenue was up 152% over the prior year’s quarter. EBITDA was up 447% year over year. Compared to Q3 2021, EPS was up by an even higher figure (614%) and beat Wall Street estimates ($7.50 actual versus consensus of $6.99). Yet, despite these positives, the market chose instead to focus on the negative aspects of the earnings report.
Although earnings beat consensus, Albemarle’s top line slightly fell short of the sell side’s forecast. Management also tightened rather than raised its full-year guidance.
Perhaps viewing this as a sign of the lithium boom cooling, investors have bailed out of ALB stock in recent days. Falling 4.47% on the day earnings hit the street, shares at writing continue to trend downwards.
Again though, you may want instead to go against the grain, and not follow the crowd’s move out of ALB and other lithium stocks. Much points to concerns about this space being an overreaction.
Lithium Correction? Not So Fast
The ALB stock post-earnings slide is happening against the backdrop of rising worries about the future of the lithium market. In a recent article on another major lithium mining stock, Lithium Americas (NYSE:LAC), I discussed how an increasing number of market strategists are calling for a lithium correction.
Yet while predictions of lithium price declines as high as 75% sound scary, I would take them with a grain of salt. Many of these forecasts are based upon the prospect of a big increase in supply coming online. While the industry is looking to ramp up production, this may still not be enough to satisfy burgeoning demand.
Automakers are accelerating their move into producing mainly electric-powered vehicles. The Biden Administration is also making efforts to accelerate mass adoption of EVs, awarding $2.8 billion in grants for EV battery projects.
Analysts from S&P Global recently argued that annual market demand for lithium-ion battery capacity is expected to rise from 0.29 to 3.4 Terawatt hours (or TWh) by 2030. All of this points to lithium prices remaining well above prior year levels. Coupled with the company’s moves to increase output, lithium tailwinds are far from peaking for Albemarle.
Bottom Line on ALB Stock
As seen in its latest investor presentation, Albemarle anticipates growing its annual lithium sales volume by an average of 20% annually between now and 2025. In other words, the company isn’t relying on just further increases in lithium prices to keep itself in growth mode.
Although earnings growth is expected to decelerate next year, a forecasted 22.4% increase in earnings isn’t anything to sneeze at, especially for a stock trading for less than 10 times this earnings estimate for the coming year.
If the continued march of the EV revolutions proves wrong pessimistic lithium demand forecasts, ALB will likely experience an expansion of its forward multiple. Together with further earnings growth, this could ultimately mean big returns for investors buying today.
With this in mind, now may be a great time to add ALB stock, a low-priced, high-quality lithium play, to your portfolio.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.