Shares of lithium giant Albemarle (ALB, Financial) surged 11% in early morning trading, following a significant industry development. This jump comes amid recent significant value erosion in lithium stocks.
Albemarle (ALB, Financial) has experienced a 40% decline this year, even with today’s gains. This drop is largely due to oversupply concerns driven by a global slowdown in electric vehicle (EV) demand, which pushed lithium prices to three-year lows. Industry experts predict lithium supply will increase by nearly 50% this year, primarily from China.
However, a major development from China has renewed investor interest. Contemporary Amperex Technology (CATL) plans to suspend operations at its Jiangxi lithium mine. UBS analyst Sky Han disclosed this in a recent research report, citing a meeting on Sept. 10. CATL confirmed to Reuters that it will adjust lithium carbonate production in Yichun based on current market conditions. CATL’s move is estimated to reduce China’s monthly lithium carbonate production by 8%. This reduction could be a crucial turning point for the struggling lithium industry.
Albemarle Corp (ticker: ALB) is one of the world’s largest lithium producers, primarily serving the battery market for electric vehicles. The company’s integrated operations span salt brine deposits in Chile and the U.S. and two hard rock mines in Australia, all of which are joint ventures. Despite its market leadership, Albemarle has been affected by several financial challenges.
According to the latest stock data, Albemarle’s price stands at $87.27. The company has seen its market capitalization fall to $10,256.83 million. The stock is currently valued at a price-to-book (P/B) ratio of 1.14, close to its 10-year low, indicating potential undervaluation. Moreover, the company’s gross margin and operating margin have shown long-term declines, with average annual declines of 13% and 25.4%, respectively.
Albemarle has a distressing Altman Z-Score of 1.64, putting it in the distress zone and implying a higher bankruptcy possibility over the next two years. Moreover, the company’s gross margin stands at -8.32%, whereas the median gross margin for the chemicals industry is 33.42%. The operating margin is also in negative territory at -19.32%.
Despite these financial warning signs, there are some positive aspects for investors to consider. Albemarle’s stock dividend yield is close to its 3-year high, and the price-to-sales (P/S) ratio of 1.33 is near its 10-year low. Additionally, the stock has a Beneish M-Score of -6.2, indicating that the company is unlikely to be a manipulator of financial statements.
On the valuation front, Albemarle has a GF Value of $249.68, which you can view more details about on its GF Value page. This suggests that the stock may be undervalued at its current price, but caution is advised given its financial health metrics.
In summary, while Albemarle (ALB, Financial) faces significant headwinds due to oversupply issues and weakening margins, the recent production cut news from China provides a glimmer of hope. Investors should weigh these factors carefully when considering the stock.
