Why Is Albemarle Stock Dropping?

Most electric vehicles run on lithium-ion batteries, and as the global production of EVs has skyrocketed in recent years, the demand for lithium has grown exponentially. However, EV sales have stagnated recently because early adopters have already bought their vehicles and high interest rates are keeping new buyers on the fence.

At the heyday of EV production a few years ago, the demand for lithium drove a spike in shares of lithium miner Albemarle Corporation (NYSE: ALB) which sent the stock up over 350% from the beginning of 2020 to ALB’s high above $325 per share in late 2022.

Once EV sales began to soften, Albemarle shares dropped precipitously. Now trading below $100 per share, ALB is down roughly 40% year-to-date. That is even after a recent uptick on news that a major battery maker will scale back their lithium mining operations.

If macroeconomic conditions improve and EV sales accelerate, as many expect, there could be an immediate increase in demand for lithium. Albemarle, which is well-established as one of the world’s leading lithium producers, would be in a prime position to capitalize. Is that likely to happen? 

Why Is Albemarle Stock Dropping?

Albemarle stock is dropping primarily on the back of falling prices in lithium, which is core to its business as well as an economic slowdown in China.

In addition, the company has had trouble maintaining profitability. In the second quarter of 2024, Albemarle reported revenues of $1.4 billion, a 39.6% year-over-year decline. It did, however, beat analysts’ revenue estimates by 7.5%.

The company’s net loss of $188 million deepened by 128% from last year. Diluted earning per share worked out to -$1.96, which was 91% lower than analysts expected. The net loss did include an after-tax charge of $215 million due to capital project write-offs and the contract cancellation costs associated with them.

Still, Albemarle was able to increase its cash from operations by $289 million from last year, up to $363 million. Albemarle’s leadership maintained full year guidance based on expectations that lithium prices would stabilize.

The company has lithium mining locations across the globe, and that sprawling organization has become one of its issues now that revenue is slumping.

“Building on the progress already underway, we are announcing a comprehensive review of our cost and operating structure, beginning with immediate footprint actions at our Kemerton site in Australia,”said Kent Masters, Albemarle’s chairman and CEO in the earnings release. “The review and steps underway will maintain Albemarle’s competitive position and ensure we execute with agility today and in the future.”

Will Albemarle Stock Go Back Up?

While Albemarle has struggled to drive profitability, the company has plenty of room to rebound. The biggest catalyst for a turnaround will be a surge in EV sales.

According to a recent report from Bloomberg, EV sales are still projected to grow over the next decade, though not at the same high rate of previous years. EV purchases certainly have the potential to accelerate if economic conditions improve, especially if interest rates fall.

Even if sales of electric vehicles do pick up, speculation is rife that lithium-ion batteries may lose their place as the EV battery of choice. Sodium-ion batteries are a more powerful option that are also a greener alternative to mined lithium batteries. Strides have also been made with solid-state batteries, which are purported to run longer on less charge.

Another concern for Albemarle is the degree of competition in the lithium mining space. Many of the companies and countries that produce lithium are planning to rev up production in the coming years, potentially leading to supply to exceed EV makers’ lithium demand.

However, the recent news that Chinese battery maker CATL will be scaling back its lithium mining operations gave investors hope that the remaining lithium miners, including Albemarle, will benefit. CATL cited the slumping price of lithium as the reason it will pause its mining operations.

How Do Analysts Rate Albemarle Stock?

Despite those concerns, Wall Street analysts haven’t completely lost faith in Albemarle with 15 of 29 rating it a Hold.

The consensus price target for the stock is $108.27 per share, corresponding to a 22.3% increase from where the stock currently trades.

The highest forecast has ALB soaring 93.2% to $171 per share over the next year. Two Sell ratings exist on the stock, and the lowest estimate forecasts Albemarle shares will drop by 17.5% to $73 per share over the next 12 months.

Is Albemarle Stock a Good Deal Now?

Analysts largely believe that Albemarle stock has significant room to rise in the near future and that thesis is backed by the company’s relatively low price-to-sales ratio of 1.24 compared to EV leader Tesla, which has a P/S multiple of 8.3. However, Chinese EV maker BYD currently has a price-to-sales ratio pegged at 1.

Those companies are also much larger companies and have very different business models than Albemarle, but the lithium miner’s P/S multiple still hints at undervaluation, at least when viewed through the sales lens.

In addition, Albemarle began paying a dividend earlier this year, which is a rarity for an unprofitable company. It currently pays a 1.83% annual dividend yield to shareholders, and that percentage corresponds to a $0.40 per share quarterly payout for ALB shareholders.

Is Albemarle Stock a Buy or Sell?

Albemarle stock skyrocketed in the EV boom but as EV sales have slowed, the lithium mining company’s stock plummeted. Albemarle has struggled to meet earnings expectations, though it has managed to increase its cash flow.

There are concerns that lithium-ion batteries might be replaced by other solutions. Other concerns abound relating to the sheer number of lithium mining operations across the globe.

At first glance, the CTAL scale-back looks like good news for Albemarle but it is somewhat concerning for investors that a major lithium mining operation is shuttering due to the slumping price of the metal.

It is another concern that Albemarle might suffer the same fate as CTAL if EV sales continue to lag in a tough economic environment. That means ALB is mostly for a buy for risk-takers, despite its strong position in the industry.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.