The accelerating global trend toward decarbonization, prominently marked by governments’ push toward a transition to electric vehicles (EVs), continues to propel the EV market forward with impressive momentum. Amid this, Lithium Americas Corp. (LAC) has seen a notable increase in investor interest, driving its stock higher.
However, the company’s financials exhibit some concerns. LAC is currently operating with negative net income and has a trailing-12-month levered free cash flow of a deficit of $19.96 million.
With a beta of 1.56, LAC could witness significant volatility. Moreover, the stock seems to be trading above its intrinsic value, raising the concern of prospective sharp price drops.
LAC’s forward EV/Sales of 30.02x is substantially higher than the industry average of 1.57x, while its forward Price/Sales multiple of 34.50 is 2,826% higher than the industry average of 1.18.
Governments worldwide remain steadfast in their commitment to achieving net-zero emissions, as exemplified by the Biden administration’s goal to ensure that 50% of all new vehicle sales are electric by 2030. This transition is expected to create substantial opportunities for lithium companies, which play a critical role in EV production.
Despite increasing demand, the lithium supply chain has faced persistent constraints over the past decade. With supply dependent on just a handful of nations, protests continuing over the environmental impact of lithium extraction, and geopolitical issues, there remains significant uncertainty around supply sufficiency.
In light of these factors, investors should exercise caution about investing in LAC. We delve deeper into some of its metrics to arrive at a comprehensive understanding of the risks involved.
Evaluating the Financial Health of Lithium Americas Corp. through Key Financial Metrics
The trailing-12-month net income of LAC over the past few years shows a general trend of increasing losses. The figures suggest a notable upswing in the level of net losses that we see when comparing data points from late 2020 to those from early 2023.
- On September 30, 2020, the net income was at a loss of $32.67 million.
- There was a slight fluctuation as of December 31, 2020, where the net income came at a higher loss of $36.23 million.
- As of March 31, 2021, a slight drop in the losses to $32.15 million was noted, only to be followed by an increase to $45.48 million in losses on June 30, 2021.
- September 30, 2021, marked another relative spike where net income dropped to -$56.21 million and continued to increase in its loss margin over the year.
- Significant drops occurred in 2022, where losses rose drastically in the first quarter at $74.69 million in March and then slightly dropped in June at $71.92 million.
- The most significant dip was reported in September 2022, with losses reaching $95.71 million, which was reduced slightly to the end of the year in December at $93.57 million.
- In contrast, the first quarter of 2023 showed a decreased loss of $53.84 million in March.
Given the data, the overall growth rate of net losses from the fourth quarter of 2020 to the first quarter of 2023 is high, signaling increased financial pressure on LAC. This reflects a negative growth in profit for Lithium Americas Corp., with more recent data suggesting a continuous trend of increasing losses, albeit with slight fluctuations over time.
The trailing-12-month revenue of LAC from September 30, 2020, to March 31, 2023, has seen fluctuations, with a significant downward trend leading into a financial drought still present.
- At the start of the series, on September 30, 2020, LAC reported negative revenue of $-4.30 million.
- The revenue then saw a substantial increase to $0 by the end of the year on December 31, 2020, where it remained constant throughout the remaining course of the series and up until most recently.
As of the last data point on March 31, 2023, LAC’s revenue remains at $0. The revenue growth rate from the first value to the last cannot be calculated due to the constant $0 revenue reported since December 2020. The data shows that LAC has been experiencing a persistent lack of revenue since the end of 2020. This period of no financial inflow has extended for more than two years.
The Return on Invested Capital (ROIC) of LAC has generally trended negatively from September 2020 to March 2023, showing a series of fluctuations but a significant negative growth overall. A detailed breakdown is as follows:
- In December 2020, the ROIC dipped slightly from -8.8% in September 2020 to -9.3%.
- In the first quarter of 2021, a slight improvement brought ROIC to -7.8%, though it worsened drastically by the end of June 2021 to -11.7%.
- The downward trend continued, reaching its lowest point of -13.3% in September 2021 before improving notably to -6.0% by the year-end.
- However, there was a reverse again in this positive trend, with ROIC deteriorating to -10.4% in March 2022, then improving over the next two quarters to -7.6% in December 2022.
- Most recently, as of March 2023, the ROIC substantially improved, rising to -3.4%. This marks the highest value since the start of the observation period.
It’s important to note that despite the recent improvements, LAC consistently reported negative ROIC throughout the period, reflecting a negative net return. This is worth considering when considering the long-term sustainability of the company’s business model.
The trend in the Return on Assets (ROA) of LAC exhibits a negative trajectory with significant fluctuations from September 2020 to March 2023.
- September 30, 2020: The ROA of LAC stood at -11.2%.
- December 31, 2020: Experienced an increase in the negative values to -12%, signifying a deterioration in asset performance.
- March 31, 2021: There was an improvement in the ROA, reducing the negative value to -8.1%.
- June 30, 2021 - December 31, 2021: The ROA exhibited fluctuations, with the numbers between -9.1% and -5.2%.
- March 31, 2022 - September 30, 2022: Despite minor improvements, the value remained negative, ranging from -8.8% to -9.5%.
- December 31, 2022: There was a slight decrease in losses compared to the previous quarter, with the ROA at -8.9%.
- March 31, 2023: LAC showed another instance of improvement, with the ROA stepping up to -4.9%, which is the highest value in this observed period.
Despite the most recent ROA figure for March 2023 portraying a relative recovery in LAC’s asset utilization efficiency, ROA remained negative throughout this period.
The Current Ratio of LAC has seen both spikes and declines from September 2020 through March 2023. Here is a brief rundown:
- From September 2020 to December 2020, the current ratio rose modestly from 14.57 to 17.18.
- In March 2021, there was a dramatic upsurge to 98.92, the highest point in this data series.
- This was followed by a drop to 56.73 by June 2021. However, it slightly rebounded to 57.43 by September 2021.
- After reaching 64.51 by the end of 2021, the current ratio declined through the first half of 2022, hitting 44.14 in June.
- It picked up again to 52.06 in September 2022 but fell sharply to 18.13 at the end of the year.
- In the last quarter provided (first quarter of 2023), the current ratio further declined to 10.00.
Overall, LAC’s current ratio decreased by roughly 31% over this two-and-a-half-year period, based on the final value of 10.00 against the original 14.57 from September 2020.
Understanding Lithium Americas Corp.’s 2023 Share Price Volatility: A Six-Month Analysis
The share price of LAC shows a somewhat volatile pattern of ups and downs from January to July 2023. Here are key points to consider:
- Starting at $22.25 in January, the share value peaked at $25.35 during the second week of February.
- However, LAC’s share price didn’t sustain this peak and gradually dropped to $20.60 by the end of March, indicating a deceleration in growth.
- In April, the share price continued to experience a slight downtrend, settling at $19.81 at the end of the month.
- May saw another upsurge where it touched $22.45 in the third week, but yet again, it reduced to $21.02 by the second week of June.
- The price further descended to $19.93 by the end of June.
- Despite a short rebound in early July, reaching $20.84 in the third week, the price plummeted to $19.41 on July 24.
In summary, within six months in 2023, LAC’s share price showed an overall downward trend, despite multiple but inconsistent surges. While there was an early peak in February, the decelerating trend is clear to note from March onwards, indicative of fluctuating market conditions. Here is a chart of LAC’s price over the past 180 days.
POWR Ratings Analysis
LAC has an overall D rating, translating to a Sell in our POWR Ratings system. It is ranked #38 out of the 42 stocks in the Miners - Diversified category. It also has an F grade in Quality and a D in Value, Growth and Stability.
POWR grade has fluctuated between F and D grades in the data from January 2023 to July 2023. Here are key details:
- Starting January 2023, the POWR grade was F, ranking 41 out of 42 in the category.
- The POWR grade remained F for most of the first quarter of 2023, with ranks fluctuating slightly but remaining close to the bottom of the category.
- A notable improvement showed up in the week of April 8, 2023, with the POWR grade going up to D. The rank had improved to 31.
- However, this improvement was not sustained. The grade varied between F and D in the following months, and although the rank improved for some weeks, it fell again by mid-May.
- In the latest available data, for the week of July 22, 2023, the POWR grade is D, and the rank within the category is 38.
The pattern shows that despite some points of improvement, the overall performance of LAC, as indicated by the POWR grade, has remained quite low within its category during this time frame.
Stocks to Consider Instead of Lithium Americas Corp. (LAC)
Other stocks in the Miners - Diversified sector that may be worth considering are Fortescue Metals Group Ltd. (FSUGY), Champion Iron Limited (CIAFF), and Impala Platinum Holdings Ltd. (IMPUY) -- they have better POWR Ratings.
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LAC shares were trading at $19.55 per share on Tuesday afternoon, up $0.14 (+0.72%). Year-to-date, LAC has gained 3.17%, versus a 20.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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