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An Undervalued Name In The Lithium Space

Lithium

One of the things that I say quite frequently is that if the pricing of something looks to you to be way off, the first thing to do is to check your own assumptions. Logically, it is far more likely that you have missed something than that everybody else has and, even if you are “right” and everyone else is “wrong”, the price won’t reflect that until something happens to make them realize that that is the case. So, this week, when I did a post-earnings check on the fundamental metrics for a stock that has served me well over the last couple of years, Livent Corp. (LTHM), I did a lot of assumption checking. And yet, try as I might, I could see no reason why the stock won’t show significant gains from current levels.

Let’s start with those earnings. For the third straight quarter, LTHM beat the consensus estimate for EPS, and did so on EBITDA that grew 42% from the same quarter a year ago. Obviously, being a commodity miner, their profitability is to some extent dependent on market pricing that is out of their control, but the results show that they are a company that maximizes opportunity, with a management team that executes efficiently.

And yet, despite consistently proving that, LTHM continues to trade at levels that equate to P/Es and other value metrics that are extremely low. The trailing and forward multiples are around 13 and 11, while the PEG ratio, where a number below 1.0 indicates a potentially undervalued…





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