Should You Add Lithium Americas to Your Portfolio?

A development-stage company Lithium Americas (LAC), recently announced that it is expected to close its acquisition of Canada-based Millennial Lithium in an all-stock deal worth $400 million this month. It raised $258.75 million in debt in senior convertible notes to roll over old debt at a lower interest rate and used part of the proceeds to repay existing debt worth $205 million.

However, LAC posted disappointing third-quarter results, remains profitless and revenue less, and is yet to start production. In addition, the stock has lost 2.8% over the past month to close yesterday’s trading session at $26.75. Furthermore, it is currently trading 35.6% below its 52-week high of $41.56, which it hit on November 30, 2021. So, LAC’s near-term prospects look bleak.

Here’s what could influence LAC’s performance in the upcoming months:

Disappointing Financials

LAC’s total assets came in at $716.17 million for the period ended September 30, 2021, compared to $326.72 million for the period ended December 31, 2020. However, its total liabilities came in at $188.75 million for the period ended September 30, 2021, compared to $136.02 million for the period ended December 31, 2020. In comparison, for the fiscal third quarter ended September 30, 2021, its net loss came in at $17.21 million, representing a 165.4% year-over-year increase. Also, its loss per share came in at $0.14, up 100% year-over-year.

Unfavorable Analyst Estimates

Analysts expect LAC’s EPS to decrease 169.4% for the quarter ending March 31, 2022, and 14.9% in the fiscal ended December 31, 2021. Also, its EPS is expected to remain negative in the quarter ending March 31, 2022, and fiscal 2022.

POWR Ratings Reflect Bleak Prospects

LAC has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. LAC has an F grade for Quality, in sync with its negative trailing-12-month ROCE, ROTC, and ROTA compared to the industry averages of 12.03%, 7.58%, and 5.28%, respectively.

The stock has a D grade for Stability, consistent with its beta of 1.34. In addition, LAC has an F grade for Value, in sync with its trailing-12-month P/B of 6.09x, which is 177.4% higher than the industry average of 2.20x.

LAC also has a D grade for Growth. This is justified as analysts expect its EPS to decline in the near term.

Beyond what I have stated above, we have also given LAC grades for Sentiment and Momentum. Get all the LAC ratings here.

LAC is ranked #36 out of 40 stocks in the F-rated Miners - Diversified industry.

Bottom Line

The ongoing supply and labor shortage could lead to unexpected delays and hurdles in production. In addition, LAC has no revenue and no profits either. As the stock looks overvalued at the current price level, it is best to avoid it now.

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

While LAC has an overall POWR Rating of F, you might want to consider investing in Miners - Diversified stocks with A (Strong Buy) or B (Buy) rating, such as Fortescue Metals Group Limited (FSUGY), Ero Copper Corp. (ERRPF), and Lundin Mining (LUNMF).

LAC shares were trading at $25.06 per share on Friday afternoon, down $1.69 (-6.32%). Year-to-date, LAC has declined -13.94%, versus a -7.79% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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