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Does Lithium Americas Deserve a Place in Your Portfolio?

Shares of development-stage lithium producer Lithium Americas (LAC) gained momentum over the past year, given the raw material supply shortage. However, with no revenues and negative profit margins, is LAC an ideal investment now? Let’s find out.

Headquartered in Vancouver, Canada, Lithium Americas Corp. (LAC) is a lithium resource company operating in the United States and Argentina. The company owns mining interests in Cauchari-Olaroz and Pastos Grandes projects in Argentina and Thacker Pass in the United States. However, LAC has an ISS Governance QualityScore of 8, indicating high governance risk.

LAC shares have gained 43.9% over the past year as investors gained interest in lithium stocks amid the global supply shortage. However, the company’s poor financials and bleak near-term growth prospects have deterred the investors lately, as the stock fell 24.8% year-to-date and 7.1% over the past five days.

Here’s what could shape LAC’s performance in the near term:

Potential Business Separation

LAC is currently exploring a potential separation of its U.S. and Argentina operations, as announced in February. The company is exploring the creation of a standalone public company focused on the development of Thacker Pass. However, this might reduce the value of the parent company’s shares currently held by shareholders.

Bleak Financials

For the fiscal first quarter ended March 31, 2022, LAC’s net loss worsened 361% year-over-year to $46.10 million. This can be attributed to an 81.8% year-over-year rise in expenses to $16 million. Loss per share widened 288.9% from the same period last year to $0.35.

The company’s cash and cash equivalents came in at $492.30 million as of March 31, 2022, down 3.6% from the balance recorded on December 31, 2021. The company’s total assets rose 31% in the first three months of 2022 to $1.14 billion as of March 31. However, this is primarily due to a $50.30 million increase in the fair value of convertible senior notes derivative liability.

Unapproved Funding Application

On February 28, LAC announced the submission of a draft loan application to the U.S. Department of Energy under the Advanced Technologies Vehicle Manufacturing Loan Program. The company has formally requested government funding for its Thacker Pass lithium project in Nevada.

Regarding this, Jonathan Evans, LAC President and CEO, said, “Thacker Pass is a unique, large-scale and advanced-stage lithium project representing one of the most significant opportunities to create a truly domestic lithium supply chain to support the production of electric vehicles in the US.”

However, the company is yet to receive any funding from the Department of Energy.

Poor Growth Prospects

LAC is yet to generate revenues from its operations. Analysts expect the company to generate revenues in the fiscal fourth quarter (ending December 2022). However, the company’s EPS is expected to remain negative until at least fiscal 2022. In fact, the consensus loss per share estimate of $0.66 for the ongoing year indicates a 106.7% decline year-over-year.

Unfavorable POWR Ratings

LAC has an overall rating of F, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of F for Stability, Value, and Quality. Its relatively high 1.60 beta justifies the Stability grade. In addition, LAC’s EV/EBITDA margin is negative 55.10, in sync with the Value grade. Also, the company’s negative trailing-12-month ROE, ROTC, and ROA match the Quality grade.

Of the 45 stocks in the F-rated Miners – Diversified industry, LAC is ranked #44.

Beyond what I’ve stated above, click here to view LAC ratings for Growth, Momentum, and Sentiment.

Bottom Line

LAC is a development-stage lithium production company and is yet to commercialize its operations. It is expected to begin generating revenues later this year. However, it might take quite some time for the company to become profitable and generate positive returns for shareholders. Thus, the stock is best avoided now.

How Does Lithium Americas (LAC) Stack Up Against its Peers?

While LAC has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Ero Copper Corp. (ERO), South32 Limited (SOUHY), and Glencore plc (GLNCY), which have a B (Buy) rating.

LAC shares were trading at $22.56 per share on Friday afternoon, down $0.35 (-1.53%). Year-to-date, LAC has declined -22.53%, versus a -17.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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