Livent Corp (LTHM, Financial) experienced a daily loss of 2.19%, and over the past three months, the stock has seen a decrease of 29.17%. Despite this, the company's Earnings Per Share (EPS) (EPS) stands at 1.74. The question we aim to answer is: Is Livent (LTHM) significantly undervalued? By delving into a valuation analysis, we can explore this question further. We encourage readers to continue for an in-depth analysis.
Company Introduction
Livent is a pure-play lithium producer that was formed when FMC spun off its lithium business in October 2018. The company plans to merge with another pure-play lithium producer, Allkem, in an all-stock transaction that should close by the end of 2023. Livent should benefit from increased lithium demand via higher electric vehicle adoption, as lithium is a key component of EV batteries. The company's low-cost lithium carbonate production comes from brine resources in Argentina. Livent also operates downstream lithium hydroxide conversion plants in the United States and China and has a 50% stake in a fully integrated Canadian lithium project. With a stock price of $19 and a GF Value of $42.1, Livent's stock appears to be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that presents the current intrinsic value of a stock, derived from a unique method. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. This value is computed based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has been traded.
- A GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of business performance.
The GF Value Line is the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Considering these factors, Livent Corp (LTHM, Financial) appears to be significantly undervalued. With a market cap of $3.40 billion and a current price of $19 per share, the potential for higher long-term returns is evident, given that the stock is trading below its intrinsic value.
Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy shares. Livent has a cash-to-debt ratio of 0.67, which ranks worse than 51.83% of 1501 companies in the Chemicals industry. Based on this, GuruFocus ranks Livent's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Profitable companies, especially those that have demonstrated consistent profitability over the long term, pose less risk to investors. Livent has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $940.30 million and Earnings Per Share (EPS) of $1.74. Its operating margin is 50.48%, which ranks better than 99.27% of 1507 companies in the Chemicals industry. Overall, GuruFocus ranks the profitability of Livent at 7 out of 10, which indicates fair profitability.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of Livent is15%, which ranks better than 66.97% of 1447 companies in the Chemicals industry. The 3-year average EBITDA growth is 49.6%, which ranks better than 90.28% of 1338 companies in the Chemicals industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Livent's ROIC was 22.88, while its WACC came in at 12.71.
Conclusion
In summary, the stock of Livent (LTHM, Financial) gives every indication of being significantly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 90.28% of 1338 companies in the Chemicals industry. To learn more about Livent stock, you can check out its 30-Year Financials here.
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