LINRF - Lithium Lament: Why ALB Stock Isn't the Electric Dream It Seems
2023-09-26 06:30:02 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Enterprising investors might have their sights set on multinational specialty chemical and lithium company Albermarle (NYSE: ALB ).
They might consider ALB stock a worthy indirect wager on the electric vehicle market. However, there are reasons to be cautious, so think twice before considering a share stake in Albemarle.
Don’t get the wrong idea here. We’re not saying Albemarle is a “zombie” or a terrible company. Just don’t be enticed by Albemarle’s valuation, as it may be deceptive and the company’s shares could lose value in the coming months.
Is ALB Stock Actually a Good Value?
It’s fine to use a company’s price-to-earnings (P/E) ratio as a measuring tool, but it’s not the be-all and end-all. Albemarle actually provides a good example of this.
Value hunters may point to Albemarle’s trailing P/E ratio of approximately 5x , and assume that the company’s stock must be a bargain. Remember, however, that (to borrow a Benjamin Graham/Warren Buffett quote) price is what you pay but value is what you actually get.
ALB stock has been a poor performer in 2023 so far. And, a P/E ratio can get ultra-low when a company’s stock tanks. Sensible investors might even get suspicious if a company’s P/E ratio is too low.
Frankly, it’s easy to see why some traders dumped their Albemarle shares. In August, a Wall Street Journal headline declared Albemarle is paying $218.5 million to settle a foreign bribery probe .
This settlement, reportedly, is to “resolve possible violations of the U.S. Foreign Corrupt Practices Act.”
Albemarle’s Pricey Acquisition
Along with a couple hundred million dollars’ worth of financial damage, Albemarle will have to deal with the reputational fallout. After all, some investors may be uncomfortable with a company that possibly ran afoul of the U.S. Foreign Corrupt Practices Act.
Yet, coughing up $218.5 million to settle that probe might be just a drop in the proverbial bucket.
That’s because Albemarle is potentially about to spend a whopping $4.3 billion to acquire Australian resource company Liontown Resources (OTCMKTS: LINRF ).
Expanding a mining company’s resource base is all fine and well. However, as of June 30, Albemarle had “ estimated liquidity of approximately $3.3 billion .” and total debt of $3.5 billion.
So, it’s questionable whether Albemarle can really afford to make a $4.3 billion purchase now. Again, we’re concluding that ALB stock might not be a great value just because Albemarle’s P/E ratio looks reasonable.
Don’t Try to Mine for Profits With ALB Stock
It’s fine to be bullish on the EV industry and on lithium as a commodity. On the other hand, prospective investors should consider Albemarle’s liquidity position and the company’s debt.
Then, you also need to think about Albemarle’s reputation in the wake of the foreign bribery probe. The best grade we can give ALB stock today is a “D.”
Investors might want to check in on Albemarle from time to time, but there’s no hurry to buy the company’s shares now.
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.
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