Incorporated in 2018, Livent Corporation (LTHM) is a manufacturer and seller of performance lithium compounds mainly used in lithium-based batteries, specialty polymers, and chemical synthesis applications. Because governments around the world are focused on increasing the mainstream adoption of electric vehicles (EVs) to reduce carbon emissions, the demand for lithium, which is a key component for EV batteries, is surging. This positive backdrop has helped LTHM gain 138.3% over the past year.
However, LTHM's stock has lost 2.6% so far this year and is currently trading 26.3% below its all-time high of $23.99, which it hit on January 20.
Although the resumption of its capacity expansion plans in Argentina and the United States should bode well for the stock, some of its projects are not expected to reach their commercialization stage anytime soon. In fact, LTHM’s current valuation is not justified given the company’s high losses and expenses. Consequently, we think LTHM’s stock price could suffer a further pullback in the near term.
Click here to checkout our Electric Vehicle Industry Report for 2021
Here is what we think could influence LTHM’s performance in the coming months:
Delay in Commercial Production
LTHM’s 5,000 metric ton hydroxide addition to its Bessemer City project was halted in March 2020 due to the onset of the COVID-19 pandemic. Its 10,000-metric ton carbonate expansion project in Argentina was paused for the same reason. Although the company has resumed those operations, its carbonate expansion in Argentina is not expected to begin before the end of 2023. Furthermore, its Bessemer City project is also not expected to begin production before the third quarter of 2022. This means that it could be months before LTHM starts generating meaningful profits from these operations.
Weak Financials and Profitability
LTHM’s total revenue for the first quarter, ended March 31, 2021, came in at $91.7 million, increasing 33.9% year-over-year. However, the company’s net loss came in at $0.8 billion, and it reported a $0.01 loss per share. Its gross margin declined 8.9% year-over-year to $13.3 million over this period. The company incurred $90 million in total costs and expenses, representing a 27.5% increase year-over-year. Its non-GAAP net debt stood at $277.4 million, as of March 31, 2021. This compares to a $263 million in non-GAAP net debt as of December 31, 2020.
The company’s 12.7% trailing-12-month gross profit margin is 56% lower than the 28.9% industry average. The company’s trailing-12-month EBITDA margin and asset turnover ratio of 4.7% and 0.4%, respectively, are 73.8% and 45.6% lower than their industry averages. LTHM’s trailing-12-month ROA and ROE are negative 1.9% and 3.3%, respectively.
Stretched Valuation
Currently, LTHM looks extremely expensive. In terms of non-GAAP forward P/E, LTHM is currently trading at 148.19x, which is 824.9% higher than the 16.02x industry average. Its 21.17 non-GAAP forward PEG ratio is 1,309.1% higher than the 1.50 industry average. Furthermore, the stock’s 50.76 forward Price/Cash Flow multiple compares with the 10.12 industry average. And LTHM’s 227.03 trailing-12-month EV/EBITDA ratio is significantly higher than the 11.58 industry average.
Consensus Price Target Indicates Potential Downside
Currently trading at $17.67, analysts expect the stock to hit $11.7 in the near term, indicating a 33.8% potential decline. The price targets range from a low of $7 to a high of $16.5.
Unfavorable POWR Ratings
LTHM has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. LTHM has a D grade for Quality. This justifies the stock’s negative ROA and ROE.
The company has an F Value grade, reflective of its premium valuation. Also, it has a C grade for Growth. LTHM’s revenue has declined at a 6.5% CAGR over the past three years. This justifies its Growth grade.
In addition to what we’ve stated above, one can check out additional LTHM ratings for Sentiment, Stability and Momentum here. LTHM is ranked #32 of 42 stocks in the D-rated Industrial – Metals industry.
Click here to view the top-rated stocks in the Industrial – Metals industry.
Bottom Line
Amid an escalating demand for lithium, LTHM’s supply challenges because of delays in commercial production could mar its growth. Furthermore, given that the stock is currently overvalued, we think it is best avoided now.
Click here to checkout our Electric Vehicle Industry Report for 2021
LTHM shares were trading at $17.58 per share on Wednesday morning, down $0.09 (-0.51%). Year-to-date, LTHM has declined -6.69%, versus a 13.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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