Like other lithium mining stocks, Lithium Americas (NYSE:LAC) stock has been in a slump.
After an incredible run between 2020 and late 2021, when LAC stock zoomed more than sixteen-fold, shares have delivered a mixed performance in 2022, falling around 19.2% year to date.
Yet while investors are taking a breather, Lithium Americas keeps charging ahead with its two main lithium mining projects. One of these projects is located in Argentina, the other stateside, in Nevada. Both sites are currently in the construction stage, and have yet to begin generating revenue.
However, based on company-provided projects, together these two mines could one day produce billions in annual sales for LAC. While not guaranteed it will be able to achieve this, the potential rewards for investors willing to wager on it today vastly exceed the risk that a less-ideal scenario plays out in the years ahead.
LAC Stock at a Glance
When it comes to lithium plays, investors have many high-quality choices. Some good examples are Livent (NYSE:LTHM) and Sociedad Quimica Y Minera de Chile (NYSE:SQM). Both of these established lithium companies are consistently profitable. In contrast, Lithium Americas is currently burning through cash.
In recent coverage, I’ve argued in favor of both these peers; Livent, for its potential to continue delivering remarkable revenue and earnings growth; SQM for its merits as a deep value and dividend stock. So then, with these high-quality plays out there, why even consider more speculative LAC stock?
Lithium Americas’ current market cap ($3.38 billion) is based on future potential, not future results, but future upside isn’t fully priced-in.
Per the company’s latest investor presentation, LAC’s Argentina project (Caucharí–Olaroz, of which it owns a 49% stake) could produce as much as 40,000 tons of battery-grade lithium annually, once stage one construction is completed.
Once the initial construction of its Nevada mine (Thacker Pass) is complete, it too could produce 40,000 tons annually. Further project expansion may one day bring this figure to 80,000 tons annually. Assuming lithium demand trends hold, this points to a bonanza ahead.
From Zero to Billions
For 2022, Lithium Americas is on track to generate zero revenue. Even in 2023, analyst revenue estimates range from between $263.72 million and $514.9 million. However, starting in 2024, much more significant changes to operating results could really move the needle for LAC stock.
Once its Argentine project reaches initial full production capacity, annual revenues from this venture could top $3 billion (based on current spot lithium prices). If Thacker Pass completes its phase-one construction, that could mean another few billion added to Lithium Americas’ top line.
Success in bringing both its projects to the monetization stage will drive a sharp swing in LAC’s earnings per share. According to sell-side consensus, EPS could swing from a loss of 85 cents this year to 68 cents next year and $1.62 the year after that.
If lithium carbonate prices (now at all-time highs) hold steady, or move higher, from here, LAC’s profitability jump could be even more jaw-dropping. The top end of forecasts for 2024 call for an EPS topping $5 per share. Based on the current multiples of comparable lithium stocks (like LTHM), hitting this aggressive target would undoubtedly send this stock to triple-digit price levels.
Bottom Line on LAC
Keep in mind that it’s not guaranteed this “best case scenario” plays out for Lithium America stock, which currently earns a B in Portfolio Grader.
Many market strategists are calling for a lithium correction. There is also some controversy surrounding the Thacker Pass project. However, LAC’s current discounted valuation likely takes these uncertainties into account.
Furthermore, it’s possible that the current sentiment for lithium prices is overly pessimistic. Demand for lithium (an essential component in electric vehicle batteries) among automakers stands to continue rising, as the industry pivots to vehicle electrification.
Demand is likely to see a further boost, thanks to $2.8 billion in grants for EV battery projects recently awarded by the Biden Administration.
Although risky, given the high upside if/when this miner moves into the monetization stage, consider LAC stock worthy of a speculative buy for investors bullish on the trend.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place