Shares of lithium supplier Albemarle (ALB) recently received a “buy” rating from an Argus analyst and a $124 price target, implying a bullish 25% upside from the current price.
Due to continued weakness of lithium, Albemarle’s share price has fallen all the way in 2024, from $144 at the beginning of the year to $100 nowadays. Analysts’ bullish case for the stock likely stems from the deep value story.
In fact, lithium stocks tend to move following the commodity prices. Considering that the trend of lithium prices in 2025 is still not optimistic, investors betting on Albemarle’s stock seems believing that the risk/reward balance favors buying the stock.
This view has its own logic. In fact, if you know exactly where the price of a commodity is going, there is no reason to buy stocks and you can easily make a lot of money trading commodities in the options market.
Argus analysts believe Albemarle’s balance sheet is in good shape, with net debt expected to reach $2.6 billion by the end of the year, compared with the company’s current market value of $11.7 billion.
In addition, the company is making progress including reducing capital spending by 50 percent to about $850 million by 2025 and cutting costs by $300 million to $400 million annually.
It is fair to say that any positive change in lithium prices could significantly boost the stock in 2025, while the negative impact of declining lithium prices on the stock is relatively moderate.
But the problem lies in front of every investor is that with a projected net loss of $1.4 billion and cash outflows of $1.1 billion, Albemarle will need to do more than reduce costs and capital expenditures to become profitable. Therefore, unless the lithium price is extremely bullish, investors are better off avoiding this stock in the months ahead.
