Albemarle Corp (ALB, Financial), a key player in the lithium production sector, has recently shown a daily gain of 2.94% and an impressive three-month gain of 18.66%. With an Earnings Per Share (EPS) of 2.75, investors might wonder if the stock is significantly undervalued. This article delves into Albemarle's valuation to uncover whether its current market price reflects its true worth, guided by the exclusive GF Value assessment.
Company Overview
Albemarle is a fully integrated lithium producer with extensive operations across the globe, including major facilities in Chile, the US, Australia, and China. The company is renowned for its significant role in the lithium industry, primarily driven by the demand for batteries in electric vehicles. Besides lithium, Albemarle is a leading producer of bromine and oil refining catalysts. Despite its robust business model and expansive market reach, Albemarle's stock is currently priced at $135.38, with a market cap of $15.90 billion, raising questions about its valuation compared to the GF Value of $387.17.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. It incorporates historical trading multiples like PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, along with a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. According to this metric, Albemarle's stock is significantly undervalued, suggesting that its market price should ideally align closer to the GF Value, offering potentially higher future returns.
Financial Strength and Stability
Investigating Albemarle's financial strength is crucial to understanding its risk of capital loss. The company's cash-to-debt ratio stands at 0.58, which is lower than 54.48% of its peers in the Chemicals industry. This figure, along with a fair financial strength rating of 6 out of 10, suggests that while Albemarle maintains a reasonable balance sheet, potential investors should be cautious of its debt levels.
Profitability and Growth Prospects
Albemarle has maintained profitability over the past decade, with a revenue of $8.40 billion and an operating margin of -13.11%, which is lower compared to its industry counterparts. The company's growth, measured by a 3-year average annual revenue growth rate of 40.7%, ranks better than 93.89% of companies in the Chemicals industry, showcasing its potential for value creation despite current profitability challenges.
ROIC vs. WACC
An effective way to gauge a company's profitability is to compare its Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC). For Albemarle, the past year's ROIC of -9.12 and a WACC of 11.58 indicate that the company is currently not creating shareholder value, which could be a concern for potential investors.
Conclusion
Despite the challenges in profitability and capital costs, Albemarle's significant undervaluation according to the GF Value suggests potential for future growth. Investors interested in the lithium market and Albemarle's strategic position within it should consider both the risks and opportunities presented. For a deeper insight into Albemarle's financial health and performance metrics, visit their 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
